S.

MAHENDRAN 07MBA059

INTRODUCTION
Economics experts and various studies conducted across the globe expect India and China to rule the world in the 21st century. For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giantsIndia and China.

INDIAN ECONOMY
fourth largest economy in terms of purchasing power parity  experienced a GDP growth of 9.0 percent during 2005-06 to 9.4 percent during 2006-07  will overtake Japan and become third major economic power within 10 years.  India have undergone tremendous infrastructure up gradation but the situation in not similar in most part of rural India. 

TURNING POINT
The collapse of the Soviet Union, which was India's major trading partner caused a spike in oil prices so India failed to pay back loans  In response, Prime Minister Narasimha Rao along with his finance minister Manmohan Singh initiated the economic liberalisation of 1991  ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors.  Since then, the overall direction of liberalization has remained the same, irrespective of the ruling party  Since 1990 India has emerged as one of the wealthiest economies in the developing world  It was predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China. 

Sectors of Indian Economy
The three sectors which lead to the development of Indian economy are  Agriculture  Industry  Service

Agriculture
India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 18.6% of the GDP in 2005 employed 60% of the total workforce India is the largest producer of Tea, jute. Indian total milk production is highest in the world India is placed third, having second largest production in wheat and rice and the largest production in pulses. strengthening R&D and improvements in post harvest management technologies will give a further boost to Indian agriculture.

INDUSTRY
India is fourteenth in the world in factory output.  They together account for 27.6% of the GDP  employ 17% of the total workforce  Industry needs to grow rapidly not only to boost the overall growth rate but also to generate gainful employment 

STANDING OF INDIAN COMPANIES IN 2005
World Rank Company Industry Revenue (billion $) Profits (billion $)

239

Oil and Natural Gas Corporation

Oil & Gas Operations

15.64

3.46

258

Reliance Industries

Oil & Gas Operations

18.05

2.11

326

State Bank of India

Banking

13.66

1.24

399

Indian Oil Corporation

Oil & Gas Operations

34.22

1.11

494

NTPC

Utilities

6.06

1.31

536

ICICI Bank

Banking

5.79

0.54

800

Steel Authority of India Limited

Materials

6.30

0.91

1047

Tata Consultancy Svcs

Software & Services

2.98

0.67

1128

Tata Steel

Materials

4.54

0.84

Services 
India is fifteenth in services output.

It provides employment to 23% of work force, and it is growing fast 
  

has the largest share in the GDP, accounting for 53.8% in 2005 up from 15% in 1950. Trade hotels, transport & communications have witnessed the highest growth of level 10.9% in 2004

IT enabled services, such as Business Process Outsourcing have been growing rapidly in the recent past and will continue to rise. India's large number of English speaking skilled manpower has made India a major exporter of software services and software workers. 

The Tsunami disaster was expected to have a negative impact on India's tourism but nothing of that sort was seen. In fact, tourist arrivals rose 23.5 percent in Dec 2004 and tourist arrivals crossed 3 million mark for the first time in 2004. 

CHALLENGES
the growth momentum and achieving an annual average growth of 7-8 % in the next five years.  Checking the growth of population; India is the second highest populated country in the world after China. However in terms of density India exceeds China as India's land area is almost half of China's total land. Due to a high population growth, GNI per capita remains very poor. It was only $ 2880 in 2003 (World Bank figures).  Boosting agricultural growth through diversification and development of agro processing.  Developing world-class infrastructure for sustaining growth in all the sectors of the economy.  Allowing foreign investment in more areas  Empowering the population through universal education and health care. India needs to improve its HDI rank, as at 127 it is way below many other developing countries' performance. 
Sustaining

DRAWBACKS 

poverty 

Wealth distribution in India is fairly uneven  with the top 10% of income groups earning 33% of the income.  official figures estimate that 27.5% of Indians still lived below the national poverty line in 2004-2005.  70% of Indians, or 800 million people, lived on less than 20 rupees per day  Corruption  It takes the form of bribes, evasion of tax and exchange controls, embezzlement, etc.  The TI India study estimates the monetary value of petty corruption in 11 basic services provided by the government to be around Rs.21,068 crores.

Cont«.. 

Unemployment 

Unemployment in India is characterised by chronic underemployment or disguised unemployment.  Government schemes to solve the problem, by providing financial assistance for setting up businesses, skill honing, setting up public sector enterprises 

Regional imbalance  One of the critical problems facing India's economy is the sharp and growing regional variations  industries still tend to concentrate around urban areas and port cities  state governments of backward regions are trying to reduce the disparities by offering tax holidays, cheap land, etc.,

China SECTORS IN CHINA ECONOMY economy 
Agriculture 

Main agricultural products: rice, wheat, potatoes, sorghum, peanuts, tea, millet, barley, cotton, oilseed, pork, fish.  China ranks first worldwide in farm output  Just under half of China's labor force is engaged in agriculture  only about 15.4% of the land is suitable for cultivation. 

Industry and manufacturing 

China ranks third worldwide in factory output.  Main industries: iron and steel, coal, machinery, armaments, textiles and apparel, petroleum, cement, chemical, footwear, toys, food processing, automobiles, consumer electronics, telecommunications, information technology.  Industry and construction produced 53.1% of China¶s gross domestic product (GDP) in 2005.  occupied 22.5% of the workforce 

Services 

In 2005 the services sector produced 40.3% of China¶s gross domestic product.  Prior to the onset of economic reforms in 1978, China¶s services sector was characterized by state-operated shops, rationing, and regulated prices.  After reform private markets and individual entrepreneurs and entered into market

challenges
To complete the reform of the banking sector and ensure a stable macroeconomic environment. o Policy changes are needed to reduce the disparities between rural and urban incomes and increase the pace of urbanization. o Welfare would also be improved by further reductions in the high level of pollution.
o

Comparision of India and China
INDIA GDP (purchasing power parity) GDP - real growth rate Unemployment rate Population below poverty line Inflation rate Exports Imports $4.164 trillion CHINA $10.21 trillion

9.4% 7.8% 25%

11.1% 4.2% 10%

6.2% $123.2 billion $184.4 billion

1.7% $969.7 billion $751.9 billion

Why Favor Investment Opportunities in India over China?
The India story is only getting started, while a large portion of the China story is over. ‡ Figures regarding economic analysis emerging from China are almost always suspect. ‡ In China large concentration are state-owned enterprises. ‡ Sustainability is a big factor, as well.
‡

Arguments against Lionizing China
Chinese statistics are always a suspect Returning profits from abroad is classified as FDI, which truly is not. A Communist controlled economy where prices and wages are fixed by the state cannot have inflation; hence any reporting of these numbers is a misrepresentation. Acid rain problem with SO2 spewing coal-based power plants. This is eating away their cultivable land. With per capita income well below South Korea they suddenly cannot claim to be an advanced nation Chinese money stuck in the Western banks in lieu of security for huge FDI investment in China, they cannot pretend to be rich.

Stand after 20 years
By 2025, China will still be ahead of India in the size of its economy but India will be right behind it. The per capita GNP in India will be higher.  Next 20 years will see more young people in China, which will put a significant pressure on their per capita income  In India all infrastructure investments have some element of private participation and are driven by return considerations.  The Chinese understand physical assets and commodities. They just don't understand the knowledge industry and intellectual capital. India is miles ahead of China in the development of its knowledge industry.  India¶s media and advertising industries are world class.  China imitates foreign R&D  Only 10% of India's economy is dependent on international trade versus 40-50% of China's economy.