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The development strategies which have been adopted by India and China over the last 20 years.

Extracts from this document...

Introduction

I. Abstract The driving forces in the world economy are shifting towards Asia. This paper highlights the development strategies which have been adopted by India and China over the last 20 years. Both the countries have adopted policies aimed at opening up their economies in their quest to transform themselves into developed nations. It is not an easy passage as each of these countries is faced with serious economical challenges. Yet, despite the challenges they have registered spectacular economic growth in the last two decades which are effecting a profound impact on the rest of the world. II. Content page No: Subject Page 1.0 Introduction 3 1.1 Research Problem 3 1.2 Research Objective 4 1.3 Research Question 4 2.0 Research Methodology 4 3.0 Finding 4 3.1 China's economic prospects 5 3.1.1 The phenomenal growth 5 3.1.2 The challenges 6 3.2 India's economic prospects 9 3.2.1 The pace of growth 9 3.2.2 The challenges 11 4.0 Analysis 12 4.1 The world trading system 12 4.2 The world monetary system 13 4.3 Foreign direct investment 14 5.0 Conclusion 15 6.0 Learning outcome/recommendation 16 References 17 1.0 Introduction In 1980, India was the fifth largest economy in the world, while China was eight largest (in terms of Gross Domestic Product (GDP) compared at purchasing power parity exchange rates. By 2001, China has leapt to second place, behind the United States, and India had moved up into fourth place (IMF Survey 2003). Today, these demographic giants account for nearly 40% of the world's population and nearly 20% of the world output. Having vast domestic markets, the two countries have followed inward-looking development strategies for a long period before deciding on opening up. For the last twenty years China and India have pursued opening up economic policies: they have lowered their custom duties, their non tariff barriers and have allowed foreign direct investment. This process of opening up has been accompanied by domestic economic liberalisation, resulting in an accelerated economic growth. ...read more.

Middle

In the mid-1980s, partial deregulation and an expansionary fiscal policy to stimulated growth which resulted in an increasing in both domestic and external debt. Still, it made inroads into virtually all areas of industry (IMF Survey 2003). In July 1991, the more methodical and systemic reform package was introduced by the then Finance Minister, Manmohan Singh, who is the current Prime Minister. This reform produced a more stable and sustainable growth from 1992 on. 3.2.1 The pace of growth For the three decades from 1951 - 1981, India's average annual growth rate was a steady 3.6% that was often termed as the "Hindu rate of growth". However during the 1980 - 2001 periods its average annual rate of growth of GDP was close to 6%. It reached a peak of 7.8% in 1996-97 from the low of 1.3% in the crisis year 1991-92 (IMF Survey 2003). The solidity of the Indian economy is evident from its stability in the backdrop of the Asian crisis in 1997-98 and the world economic slowdown in 2000. With bountiful monsoon rains in 2003, growth is expected to be 8% in 2003-2004 (The Economist 2004, September). The first reforms in the 1980s set the stage for the 2nd wave of reforms in 1991 that transformed its agricultural economic into a broader based economy with the addition of services and industry. Since the mid 1990s, software and computer services have been the most dynamic component of Indian service exports. India is a force to reckon with in information technology (IT). With 20% of world exports, India has thus become the world leading exporter of IT services, ahead of Ireland and the United States (Chauvin 2003). This sector is highly professional and provides a major impetus to the economy. India is also notable for its biotech and pharmaceutical products. Furthermore, the liberalisation of private sectors had created a favourable business environment, which has resulted in the emergence of world class companies that can compete with the best in the West. ...read more.

Conclusion

With statistic like this, it's no surprise that offshore outsourcing has become a major economic issue in the West and in the case of America it is also a hot political issue that is being debated in the current US presidential campaign. If this trend continues, there will be less FDI flowing into other nations especially the developing nations, which spells doom to their economy especially those who rely on FDIs for development. 5.0 Conclusion Clearly economic, political and structural challenges remain. However, it should not deny that much progress has been made in the last 20 years. Both countries have been successful in shrinking the size of the state's contribution to the economy and expanding the private sector, while their improved economic engagement with the rest of the world is encouraging. Looking ahead, India should eventually start to close the gap with China, given its favourable demographics. Further progress in both countries in terms of financial reform and reduction in the scale and influence of the public sector, will have major implications on the rest of the world economy. With that, China will inevitably emerge from this process as the co-engine of economic growth for the entire world (Erdman 2004). In the case of India, it is destined to join the ranks of United States and China as principle engine of global economic growth within a matter of years, not decades (Erdman 2004). 6.0 Learning outcome/recommendation What key lesson can be gleaned from this experience? It is clearly seen that the growth of a country is dependent upon the integration between the internal and external environment. In opening the economy to the external environment, a country is able to identify the strengths and weaknesses of its economy. Based on this revelation, new policies should be introduced to realign the economic progress with the nation's aspiration. Therefore, countries that remain alert to the changing dynamics of comparative advantages and are able to position themselves to respond effectively will benefit. This lesson is equally true in the case of India and China as they continue on the path of trade and investment reforms. III. ...read more.

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