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Republic of India

• India, officially the Republic of India is a south asian country.


• seventh-largest country by geographical area.
• second-most populous country and the most populous democracy in the world.
• Bounded by the Indian Ocean on the south, the Arabian Sea on the west, and
the Bay of Bengal on the east
• Coastline of 7500 kms, is bordered by pakistan in west, by
china,nepal and bhutan in the north, and bangladesh and
myanmar in the east.
• India is a republic consisting of 28 states and seven union territories
• With world's third largest army with the ninth largest defence budget.
• It has the world's twelfth largest economy at market exchange rates and the
fourth largest in purchasing power
• It has the world's twelfth largest economy at market exchange rates and the
fourth largest in purchasing power.
• Market based economic reforms were from 1991.
People's Republic of China
中华人民共和国

• PRC- people’s republic of China, is the largest country in East Asia and the most
populous in the world with over 1.28 billion people.(20% of world’s population.)
• It is a socialist republic ruled by the Communist Party of China under a single-party
system and has jurisdiction over twenty-two provinces, five autonomous regions, four
municipalities, and two largely self-governing Special Administrative Regions.
• China's importance in the world today is reflected through its role as the world's third
largest economy nominally (or second largest by PPP)
• a permanent member of the UN Security Council as well as being a member of several
other multilateral organizations including the WTO, APEC, East Asia Summit, and
Shanghai Cooperation Organization.
• it is a nuclear state and has the world's largest standing army with the second largest
defense budget.
• Market based economic reforms were from 1978.
• world's second largest exporter and the third largest importer of goods
• Rapid industrialization has reduced its poverty rate from 53% in 1981
to 8% in 2001.
Economy of India
• from the 1950s until the 1980s, India followed socialist-inspired policies. The economy
was shackled by extensive regulation, protectionism, and public ownership, leading to
pervasive corruption and slow growth
• Since 1991, the nation has moved towards a market-based system.
• The policy change in 1991 came after an acute balance of payments crisis, and the
emphasis since then has been to use foreign trade and foreign investment as integral
parts of India's economy.
• With an average annual GDP growth rate of 5.8% for the past two decades, the economy
is among the fastest growing in the world.
• It has the world's second largest labour force, with 516.3 million people.
• In terms of output, the agricultural sector accounts for 28% of GDP; the service and
industrial sectors make up 54% and 18% respectively.
• A Goldman Sachs report predicts that "from 2007 to 2020, India’s GDP per capita will
quadruple," and that the Indian economy will surpass the United States by 2043.
• but India "will remain a low-income country for several decades, with per capita
incomes well below its other BRIC peers.
1 Indian Rupee (INR) (₨) = 100
Currency
Paise
Fiscal year April 1–March 31
Trade organisations WTO, SAFTA
Statistics
GDP $3.305 trillion (2008 est.)
GDP growth 9% (2007)
GDP per capita $2,600 (PPP)

agriculture: 17.8%, industry:


GDP by sector
29.4%, services: 52.8% (2007 est.)

Inflation (CPI) 0.44% (CPI) (March 2009)


Population
27.5% (2008 est.)
below poverty line
Labour force 516.4 million (2007 est.)
Labour force agriculture: 60%, industry: 12%,
by occupation services: 28% (2003)
Unemployment 7.2% (2007 est.)
textiles, chemicals, food processing,
steel, transportation equipment,
Main industries
cement, mining, petroleum,
machinery, software, services
External
$163 billion[4] (Financial Year
Exports
2007-2008)

petroleum products, textile goods,


gems and jewelry, engineering
Export goods
goods, chemicals, leather
manufactures

US 15%, the People's Republic of


Main export partners China 8.7%, UAE 8.7%, UK 4.4%
(2007)

Imports $230.5 billion f.o.b. (2007 est.)


crude oil, machinery, gems,
Import goods
fertilizer, chemicals

the People's Republic of China


Main import partners 10.6%, US 7.8%, Germany 4.4%,
Singapore 4.4%

Public finances
Public Debt $149.2 billion (2007)
Revenues $141.2 billion (2007 est.)
Expenses $172.6 billion (2007 est.)
India- Percentage of population living under the poverty line
of $1 (PPP) a day, currently 356.35 rupees a month in
rural areas (around $7.4 a month).
India- The number of people employed in non-agricultural occupations in the
public and private sectors. Totals are rounded. Private sector data relates to non-
agriculture establishments with 10 or more employees
Deng Xiaoping

Economy of China(PRC)

• From its founding in 1949 to late 1978, the People's Republic of China was a Soviet-
style centrally planned economy.
• Private businesses and capitalism were suppressed. To propel the country towards a
modern, industrialized communist society, Mao Zedong instituted the Great Leap
Forward. (a major economic failure and a great humanitarian disaster.)
• In 1978, Deng Xiaoping initiated the PRC's market-oriented reforms under one-party
rule.
• Collectivization of the agriculture was dismantled and farmlands were privatized to
increase productivity.
• A wide variety of small-scale enterprises were allowed to flourish while the
government relaxed price controls and promoted foreign investment.
• Foreign trade was focused upon as a major vehicle of growth, which led to the creation
of Special Economic Zones (SEZs) first in Shenzhen (near Hong Kong) and then in
other Chinese cities
Statistics
GDP (Nominal) (2007) $3.42 trillion (ranked 3rd)
(2008) $4.33 trillion (official data)

GDP (PPP) (2008) $7.8 trillion (ranked 2nd)


GDP per capita (Nominal) $3,180 (ranked 104th)
(2008)
GDP per capita (PPP) (2008) $6,100 (ranked 105th)

GDP growth rate (2008) 9.0% (official data)


GDP by sector (2008) agriculture (primary) (11.3%)
industry (secondary) (48.6%)
services (tertiary) (40.1%)
note: industry includes construction
(5.5%)
GDP by components, % (2006) Private consumption (36.4)
Government consumption (13.7)
Gross fixed investment (40.9)
Exports of goods/services (39.7)
Imports of goods/services (-31.9)

Domestic demand growth (2002- 9.3%


06 av)
Interest rates (2007-12-20) One-year benchmark deposit rate: 4.14%
One-year lending rate: 7.47%

Inflation rate (CPI) 4.9% (CPI: 8.7%, Feb 07 - Feb 08)


4.5% (2007 av)
1.7% (2006 av)

Household income or consumption by percentage lowest 10%: 1.6%, highest 10%: 34.9%
share (2004)

Population below poverty line (2004) 10%

Gini index (2004) 46.9 (List of countries)


Labor force (2008) 807.7 million
Labor force by occupation (2006) agriculture (43%), industry (25%), services (32%)

Unemployment rate (2006) 4.3% (official); 17% (unofficial)

Industrial production growth rate (2006) 22.9%

Main industries mining and ore processing, iron, steel, aluminum, and
other metals, coal; machine building; armaments;
textiles and apparel; petroleum; cement; chemicals;
fertilizers; consumer products, including footwear, toys,
and electronics; food processing; transportation
equipment, including automobiles, rail cars and
locomotives, ships, and aircraft; telecommunications
equipment, commercial space launch vehicles, satellites
Public debt (2006) 22.1% of GDP

External debt (2006) $315 billion

Foreign exchange reserves (2008) $1.95 trillion

Foreign exchange reserves excl gold N/A


(2007)

Revenues (2008) $868.6 billion

Expenditures (2008) $850.5 billion; including capital expenditures


of $NA

Budget balance (2006) -7.0% of GDP (deficit)

Corporate income tax rate (2006) 33% (official)

Economic aid recipient (ODA) N/A

Economic aid donor


Nominal GDP from 1952 to 2005.
Economy of China continues…

• Since economic liberalization began in 1978, the PRC's investment- and export-led
economy has grown 70 times bigger.
• The primary, secondary, and tertiary industries contributed 11.3%, 48.6%, and 40.1%
respectively to the total economy.
• It is a member of the WTO and is the world's third largest trading power behind the US
and Germany.
• Its foreign exchange reserves have reached US$1.9 trillion, making it the world's largest.
• The PRC's success has been primarily due to manufacturing as a low-cost producer
• This is attributed to a combination of cheap labor, good infrastructure, medium level of
technology and skill, relatively high productivity, favorable government policy, and
some say, an undervalued exchange rate.
• yuan having been de-pegged and risen in value by 20% against the US dollar since
2005.
• The state still dominates in strategic "pillar" industries (such as energy and
heavy industries), but private enterprise (30 million private businesses). now
accounts for approximately 70% of China's national output, up from 1% in
1978.
• Its stock market in Shanghai (SSE) is raising record amounts of IPOs and its
benchmark Shanghai Composite index has doubled since 2005.
• SSE's market capitalization reached US$3 trillion in 2007 and is the world's
fifth largest exchange. China now ranks 34th in the Global Competitiveness
Index..
• The PRC's growth has been uneven when comparing different geographic
regions and rural and urban areas.
• The urban-rural income gap is getting wider in the PRC. Development has
also been mainly concentrated in the eastern coastal regions while the
remainder of the country are left behind.
• The economy is also highly energy-intensive and inefficient – it uses 20%-
100% more energy than OECD countries for many industrial processes.
• It has now become the world's second largest energy consumer behind the US
but relies on coal to supply about 70% of its energy needs
PPP GDP Shares of Major Economies in 2004

China
13% India
Rest of the World 6%
38%

USA
21%
Japan Euro Area
7% 15%
Contrasting Development
Models
• China
– Manufacturing-led
– GDP shares: industry 46%, services 41% (2005
National Economic Census)
– East Asian Model?
• India
– Services-driven
– GDP shares: industry 27%, services 52%
– New growth paradigm? (leapfrog
industrialisation stage)
25
30
35
40
45
50
55
1987
1988

1989
1990

1991

1992
Share of industry in GDP

1993

1994
1995

1996
1997
China

1998
1999
India

2000

2001
2002

2003
2004
25
30
35
40
45
50
55
19
87
19
88
19
89
19
90
19
91
19
92
19
Share of services in GDP

93
19
94
19
95
19
96
19
97
19
98
19
China

99
20
00
20
India

01
20
02
20
03
20
04
Why the difference?
• different saving rates
– Currently, China saves nearly half of its GDP,
India saves 28%
– Historically, saving rate was also much higher
in China
• Other forces at work, e.g.
– China’s industrial policy
– India’s over-regulated labour market
15
20
25
30
35
40
45
50
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
China

1989
1990
1991
India

1992
1993
1994
1995
1996
Gross National Saving Rates

1997
1998
1999
2000
2001
2002
2003
Imbalances: China
• High savings curtails consumption
– Reliance on investment expansion increased
growth volatility
– Diminishing returns  misallocation of capital
 non-performing loans
– Excess capacity  deflation
• Insufficient domestic absorption
– Reliance on export expansion
– Trade disputes incite protectionism in major
export markets
Imbalances: India
• Lack of investment funds led to neglect of
infrastructure
– High production costs  stunted manufacturing sector
 will eventually constrain the growth of high-tech
centres
• IT and IT-enabled services are skill-intensive,
rather than labour-intensive
– Jobless growth: rural unemployment and poverty
– Lack of progress in urbanisation
-20
-10
0
10
20
30
40
50
60
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
China

1998
Shares of public saving in total saving

1999
2000
India

2001
2002
2003
19

0
5
10
15
20
25
30
35
40
45
78
19
79
19
80 % of GDP
19
81
19
82
19
83
China

19
84
19
85
19
India

86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
Private savings have risen in both countries

19
99
20
00
20
01
20
02
20
03
Demographic Dividend
45 % of total population

40 0-14, China
0-14, India
35 over 65, China
over 65, India
30

25

20

15

10

0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Comparing Indian and China- for
investments
• In 1978, per capita incomes in China and India were roughly equal. As a result
of a conscious decision to integrate into the world economy, China’s per
capita income is more than twice that of India. China, the world’s emerging
manufacturing center, saves and invests twice as much as India, is twice as
open, attracts nearly ten times the annual FDI flow, and has a substantially
smaller budget deficit and larger foreign exchange reserves. And China has
done a better job at poverty alleviation .

• As a result of China’s one-child policy, a key question is whether growth will


slow to around 6% per annum in roughly ten years and whether India’s total
output will exceed China’s in 25 years. Given China’s head start, outward
orientation, rate of urbanization (which facilitates economic activity) and
dramatically superior infrastructure, such an outcome is unlikely
• But a simple calculation—GDP growth rate divided by investment as a
percentage of GDP, suggests that capital is much more efficiently employed in
India, given India’s service orientation. The experience of Japan in the 1990s,
and indeed the that of Asian tigers (where long-term equity returns have in
general been modest in many cases), shows that very low costs of capital and
high investment rates can lead to the misallocation of capital. India’s English-
speaking heritage, common law traditions and parliamentary system provide a
check to both government and

• corporate abuse, and enhance the prospect of obtaining higher long-term


equity market returns than in China, even if China remains the more dominant
economy.