India & China: Identical Beginnings

● In 1950, both China and India were rebuilding their economies after a long period of war and unrest.
● India was in much better shape, the largest economy in Asia, with a relatively sophisticated economic system.
● China plunged into the chaotic and destructive Cultural Revolution and the Great Leap Forward. By 1978, after
the death of Mao, it was an economy going nowhere with a bloated population and great poverty.
● India had turned its back on its long history of capitalism and adopted a socialist economic model with state
control. It grew only around 3.5% per year—with a population growing at 2.5%.
 India & China: Changing Trajectories

Education:
● China's early emphasis on education for all and the healthcare facilities provided by its communes helped
ready a skilled labour force.
● While both the countries had almost similar HDI scores in 1950 (0.163 and 0.160 respectively), China’s score
was markedly higher in 1973 (0.407 against India's 0.289)

Labour-Intensive Industries:
● China focussed on industries that were more labour-intensive leveraging on its pool of cheap labour.
Industries like textile, light engineering and electronics received higher investment.
● China also introduced special economic zones (SEZs) primarily in coastal regions as early as 1980, which
pushed manufacturing growth and setting up of export-oriented industries.
● As a result, by 1998 China had FDI investments of $183 per capita and India was merely at $14.
 India: Deficiencies in Manufacturing Sector

● India hardly pushed for labour-intensive manufacturing growth, the sector never picked up and the country
became a services-led economy. China became the manufacturing powerhouse of the world.
● The export-industries that are moving out of China due to rise in labour costs and the trade war with the United
States are being effectively captured by countries like Bangladesh & other countries from MITI-V.
● Manufacturing is more expensive in India than even Bangladesh & Vietnam because of:
○ Power Availability
○ Cost of Power
○ Cost of Labour
○ Cost of Transportation
○ Bureaucracy
○ Anti-large enterprises
 India & China: Stark Contrast in Infrastructure

● China invested heavily in infrastructure & provided employment to millions of people improving their economic
status and purchasing power, which was the essential ingredient for industrial progress.
● India's average investment in infrastructure in the first 50 years after Independence was 3 per cent of the GDP
when it required an investment of over 6.5 per cent.
● China, on the other hand, invested nearly 9 per cent of GDP in infrastructure when it could have done with a
6.5 per cent investment.
 India & China: Tapping Basic Resources

Energy:

● China has aggressively pushed the use of electric vehicles - a step India is following. China has the largest
number of electric vehicles and public charging point for such vehicles.
● Larger investments in renewable energy

Water:

● India has about four times more freshwater than China, which is three times its size but is facing bigger water
problem today than China. India is the biggest puller of groundwater exceeding the combined usage of China
and the USA.
● China has been successful in teaching its farming & industry communities to use less water without
compromising on productivity.
 Lessons to learn for India:

● Improve HDI to develop skilled labour pool by focussing on education, healthcare and skill development

● Remove remaining red-tapes and further incentivize the manufacturing sector

● Invest heavily in Infrastructure

● Grant full autonomy to the top 200 universities to promote innovation & research
● Keep a level playing field between Indian business and FDI

● Rapid urbanization to improve civic services and increase consumption by developing new economic centres

● Overcome socialist mindset

● Futuristic Policy-making