India and China tend to complement each others strengths making them more powerful. Mass manufacturing has become an increasingly popular sector in China whereas services and software has been on the rise in India. For example, Indians are needed to create and develop new software’s and features for technology giants such as Motorola, and Hewlett-Packard. In turn, these activities, similar to China, are gradually reducing the country’s poverty.
During this period of stable growth, the performance of the Indian service sector has been particularly significant. The growth rate of the service sector was 11.18% in 2007 and now contributes 53% of GDP. The industrial sector grew 10.63% in the same period and is now 29% of GDP. Agriculture is 17% of the Indian economy.
Furthermore, privatisation has helped progress India’s recent success.
“In India, the government has divested a significant proportion of public sector enterprises with sales including businesses involved with steel, zinc and petrochemicals” (Ian Worthington and Chris Britton, The Business Environment p. 408). When privatisation is achieved, India will benefit because the private buyer will produce more GDP and the flow of budgetary support to these firms will stop. For example, airline and telecom services such as Bharti Airtel (India's largest cellular service provider) have significantly improved due to the permitted limited entry to domestic and foreign players. Therefore this allows India to enter new markets and expand existing markets.
Although India’s economy has developed significantly, China’s economy has expanded more (appendix 2). “..China acted more quickly and aggressively to lower trade barriers, and attracted foreign direct investment inflows.” Table 1 (appendix 3) shows that China is in a better position than India as its share of import and exports goods is double and seven times the share in World merchandise exports. This is a threat to the UK’s export market share because there will be less demand for it. The foreign direct investment has been a key contributor to Chinas economic development. China has attracted foreign businesses which have led to the improvement of the country’s capital shortage as well as providing better access to technologies. “Since the economic reform and opening up to the outside, China has attracted increasingly large amount of foreign capital.” . Foreign investors can see more opportunities and fewer barriers in China than India.
An example of how well China is doing is that its market capitalisation exceeds United Kingdom’s telecom company Vodafone’s. Within a few years, Samsung has become one of the top 20 most valuable brand names in the world. Moreover, China has taken over USA’s sales with technology like television and mobile phones. This shows that Chinese consumers are increasingly buying a wide range of western consumer goods from luxury confectionery and designer clothes to expensive cars. [The Business Environment, Ian Worthington and Chris Britton p. 132]
Factors affecting Asia significantly and their economies are the credit crunch and the rate of inflation. The current financial crisis has slowed the world economy down causing a negative impact on China’s economy. For example, the trading business is beginning to suffer suggesting that there is less demand for Chinese exports. In addition, the net imports of capital will decrease resulting in countries reducing their spending. Appendix 4 shows the effect on exports of goods and services as well as net imports of capital when the countries enter the financial crisis. . The rate of inflation has impacted India as it has risen from 4% to 11%; slowing its economic growth. “Inflationary tendencies had affected the Indian economy even in the early period of planned development” (Dietmar, Rothermund, An Economic History of India p. 156). The high rate of inflation is being caused by the rising prices of oil and food. As a result, there will be a shortage of goods, restricting consumer expenditure due to low personal disposable income (PDI).
Other potential economic problems for China include a rapidly aging population, a widening rural-urban income gap and corruption. Whilst factors like lack of infrastructure, economic instability and scarcity of resources seem to be the three main impediments to India’s economic growth.
In conclusion, I have found that India and China have many similarities such as their ancient civilisation, large populations and being the leading countries to have excessive amounts of labour. However, in terms of their growth, they differ significantly as China’s economical expansion started sooner and grew more quickly compared to India’s. Furthermore, China’s growth is due to mass manufacturing and foreign direct investment whereas India’s economy focuses on technological services such as information technology and privatisation. Nevertheless, both countries are strong in exporting and importing and by developing this, it could make their country affluent thus expanding their economies. Therefore, I predict that in the future, India and China will become stronger and may even rival America, Japan and Britain as the world’s largest economy. Though, it may take India longer to achieve this as it is in 12th position in the world economy. On the other hand, financial issues such as the current credit crunch crisis and rising inflation may affect China’s and India’s economic development causing it to slow down. Nonetheless, I believe their continuous growth will impact the world economy within the next few decades. Appendix 5 supports my prediction.
Appendix 1
Appendix 2
Appendix 3 – Table 1
Appendix 4
Appendix 5
Bibliography
Books Used:
Dietmar Rothermund, An Economic History of India
E.L Wheelwright and Bruce McFarlene, The Chinese Road to Socialism – Economies of the Cultural Revolution
Ian Worthington and Chris Britton, The Business Environment, fifth edition, p. 132 + 408)
Websites Used:
