Presentation on theme: "Indian Economy : A Comparative Overview with China"— Presentation transcript:
1 Indian Economy : A Comparative Overview with China ARTI NANAVATI PROF. OF ECONOMICS DIRECTOR, CENTRE FOR CANADIAN STUDIES MAHARAJA SAYAJIRAO UNIVERSITY OF BARODAVADODARA GUJARAT-INDIADEPT. OF ECONOMICS, SIMON FRASER UNIVERSITY BURNABY, BC, CANADA18 JUNE, 2009
2 Some General FactsIndia is the world’s second most populous country of over 1 billion people after China.Urban population 28% of total. (China 39%)More than half of its population is 25 years of age. ‘Demographic dividend’.Measured in USD exchange rate terms, 12th largest in the world, with a GDP of $3.32 trillion (PPP) , China ranked 2nd largest with GDP of $7.8 trillion. (2008)PCI $2,900 at PPP and that of China $6100 (2008)Population below poverty line is 27.5% (2008 est.) China 10%World Bank classifies India as a low income economy
3 The contribution of Agriculture, industrial and service sector (2007-8) in GDP has been 21,24 and 55%. ( In China the corresponding percentages are 11.3, 48.6 and 40 % in GDP 2008)Agriculture is the predominant occupation in India, accounting for about 60% of employment ( China 43%) . The service sector makes up a further 28% (China 32%) , and industrial sector around 12% (China 25%).Organized sector employs 8% of workforce (two thirds of which are in public sector), and produces about 40% of GDP. Rest in informal sector --with predominance of ‘women.’ Urban informal sector is a fast growing sector.30% of total labour is constituted by casual labour and only 10% are in regular employment.Major problem not of open unemployment but of underemployment and disguised unemployment.Unemployment rate 6.8% (2008 est., in China 4.3% is official and 17% unofficial UR).
4 Why India?GDP growth rate 9% in , slowed down to 7.3% inMajor industries are Textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software.Services are a growing sector and play an important role in Indian economy. India is an imp. ‘back office’ destination for global outsourcing of customer services and technical support.Major exporter of highly skilled workers in financial, software, software eng.Potentials are in , manufacturing, pharmaceuticals, biotechnology, nanotechnology, telecommunication, shipbuilding, aviation, tourism and retailing.
5 Composition of India’s GDP (at Factor Cost by Economic Activity – at 1999-2000 prices, in%) 1)Agriculture etc2)Industry *2.1 Manufacturing2.2 Construction3) Services3.1 Trade, hotel, Restaurants **3.2 Transport, storage & communica3.2 Finance, insurance, etc3.3 Community, social and perservice* Inclusive of2.1, 2.2, ** of 3.2. Source : EPW 14TH June , 2008 and Economic Survey of IndiaSource: EPW June 14, 2008
6 India- Structural Transformation-? Economic policy: Approachi) Since independence (1947) – till almost late eighties followed a socialist inspired approach- strict govt. control over -private sector participation, foreign trade and FDI (Approach-import substituting rather than export promoting) .ii) India’s low average growth rate ( 3%) from was referred as ‘Hindu rate of growth’, because of the unfavorable comparison with the other Asia countries, especially the ‘East Asian Tigers’.
7 A period of import tariff, export taxes, quantitative restrictions , approvals needed for 60% of new FDI in the industrial sector.FDI averaged only $200M betweenIn 2004, net FDI inflow was about 7-8 USD bn. ( China, 52 USD bn)A large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non resident Indians.Largely and intentionally isolated from world markets.
8 Late eighties: the govt Late eighties: the govt. led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price control and reduced corporate taxes.Phase of high growth with high fiscal deficit and worsening current accountCollapse of soviet union – a major trading partner, first Gulf war causing spike in oil prices led to major balance of payment crisis with the prospects of defaulting on its loan.Prime Minister Narasimha Rao with Finance Minister Manmohan Singh initiated the economic liberalization of 1991.Reforms did away with license Raj in investment, industrial and import licensing-ended many public monopolies, introduced automatic approvals of FDI in many sectors.
9 Agriculture India ranks second world wide in farm output. In 2007, accounted for 17% in GDP employing 60% of the total workforce.After having growth rate of 2% for many years- now the growth rate is about 4.5%.Two thirds of India’s workforce still earn their livelihood directly or indirectly through agriculture.High level of disguised unemployment.Despite improvements, average yield in India ranges from 30-50% of the highest average yield in the world.Major agricultural products include rice, wheat, oilseed, cotton jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep goats, poultry and fish.India is the largest producer in the world of milk cashew nuts coconuts tea, gingerturmericand black pepper.It also has the world's largest cattle population (193 million).It is the second largest producer of wheat rice sugar groundnutand inland fishIt is the third largest producer of tobacco India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.
10 Industry India ranks 14th in the world in factory output. Industry accounts for 27.6% of the GDP and employs 17% of the work force.Manufacturing growth rate 8.4%.high-skill sectors account for almost 40 percent of the manufacturing output of India.Textile manufacturing is the second largest source for employment after agriculture and accounts for 26% of manufacturing outputOne third of industrial labour force is engaged in simple household manufacturing only.Economic reforms led to more private sector participation, an expansion in the production of consumer goods and both domestic and foreign competition.
11 Services India is fifteenth in services output. With largest share in GDP of 55%, it employs 23% of workforce.The growth rate which was 4.5% in increased to 7.5% in Recent growth rate 10.7%.Fastest growing services are –business services, information technology enabled services, business process outsourcing contributing about one third of total output of services in 2000.India’s IT industry an important contributor to BOP, accounts for only about 1% of total GDP and 1/50th of the total services.India leads the market in offshored back-office services, but as a manufacturing center it lags behind China, Thailand, and the rest of Asia.
12 External Sector $175.7 billion f.o.b (2008 est.) Exports$175.7 billion f.o.b (2008 est.)Export goodspetroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufacturesMain export partnersUS 15%, the People's Republic of China 8.7%, UAE 8.7%, UK 4.4% (2007)Imports$287.5 billion f.o.b. (2008 est.)Import goodscrude oil, machinery, gems, fertilizer, chemicalsMain import partnersPeople's Republic of China 10.6%, US 7.8%, Germany 4.4%, Singapore 4.4%
13 Almost stagnant export for the first 15 years after independence Almost stagnant export for the first 15 years after independence. Dominated by products like tea, jute and cotton manufacturers having generally inelastic demand.Since liberalization ex-im have become much broad based.India’s exports are consistently rising, covering about 80% of its imports.Merchandise trade of India about 31% of GDP in 2007 (China 68%)High technology exports as % of total manufacturing exports are 5% in case of India and 30% in case of China.FDI in India has reached 2% of GDP (China 3%, 2006), compared with 0.1% in 1990The top five countries in FDI inflows ( ) are Mauritius (44%),United States(9.4%), UK( 8%), Netherlands(6%)and Singapore(5%).
14 Sectoral Employment Share by Current Daily Status Industry DivisionAgriculture and allied activitiesMining & QuarryingManufacturingElectricity, gas and water supplyConstructionTrade , hotels and restaurantsTransport, Storage & communicationFinance, insurance, real estate andbusiness servicesSocial, community and personal servicesSource: Economic Survey of India
15 Employment Share: Economically Active Adult population (%) 2004-2005 AgricultureLabourCultivatorFarm regularNon Farm SectorCasualRegularSelf employedSource: NSSO, 62th Round
18 Rural workersWorkers in the countryside have also increased in numbers. There were 144 million rural workers in There is a high proportion of casualisation in rural areas.Regular wage/salaried employee: These were persons who worked in others’ farm or non-farmenterprises (both household and non-household) and, in return, received salary or wages ona regular basis (i.e. not on the basis of daily or periodic renewal of work contract). This categoryincluded not only persons getting time wage but also persons receiving piece wage or salary andpaid apprentices, both full time and part-time.Casual wage labourer: A person who was casually engaged in others’ farm or non-farmenterprises (both household and non-household) and, in return, received wages according to theterms of the daily or periodic work contract, was a casual wage labourer.
19 Urban workersThere were nearly 63 million urban workers in Proportion of regular workers is more among urban workers when compared to rural areas
20 WagesWage rates defer between rural and urban areas and between males and femalesSource: NSSO 62nd Round,RM-Rural Male, RF-Rural FemaleData indicates sharp disparities between the male-female and rural-urban areas. The average wage rate for regular wage/salariedemployee, was Rs for males and Rs for females (rural) and Rs for themales and Rs for the females (urban) and thus, male-female salary differential wasaround Rs. 50 in both rural and urban areas.
21 Working age population A big majority of India’s population is in the working age group.Share of working age population (15-59) will increase from 58% in 2001 to 63% in 2011.In , about 60% of the population was in the working age group.Of the working age group population, roughly 460 million people were in the workforce inOf these about 206 million (45%) were regular/casual workers.Some people may not be in the workforce because they are students, housewives etc.
22 Youth workersIndia has among the largest number of youth workers in the world.In , in the age group there were 390 million youth (35% of population)Of these 40.4% were engaged in gainful activity – i.e, nearly 160 million.Nearly half of them were workers.Many youth are students, housewives or unemployed
23 Rate of growth of employment in Organized Sector (% per annum) Public Sector Private Sector Total Organized Source: Eleventh Plan Document.
24 Public-Private organized sector Total no. of public and private sector workers stagnated between and slightly decreased in recent times.According to NSSO there are 58 m regular employees and 117 million casual labourers. DGET figures show that there are only m workers in public and private sectors. The rest are in the “unorganised” sector
28 Labour MarketGrowing employment but poor in qualitative terms with low regular employment, underemployment and mismatch between education and employment.A huge section of the working class lives in rural areas, is unskilled and condemned to low wages. In non-agriculture sector growth in employment is in informal sector.Even in the urban areas there is a high degree of casualisation, contract labour working in deplorable conditions with no security of work.Although regular employment has risen, its growth has been almost exclusively in the smaller, least productive enterprises.About 87% of manufacturing employment taking place in micro enterprises(<10 persons) producing just a third of manufacturing output.
29 Employment in firms with more than ten employees accounts for only around 3.75 per cent of total employment (one quarter of regular employment) and has been falling. Indeed, India has a much smaller proportion of employment in enterprises with ten or more employees than any OECD country.70% of Indians(800million), lived on less than 20 rupees( slightly less than C50 cents) per day with most working in informal sector with no social security. (2007 Report on National Commission for Enterprises in the unorganized sector)
30 Sex Ratio in Population with Rural-Urban break up Year Sex Ratio Rural Total19019799109721911975872964192197084695519319668389501941965831945195186094619619638459411971949858930198195187993419919388949272001901933Source : Office of the Registrar General, IndiaSex Ratio (Total, Rural and Urban) from Brief Analysis of PCA paper-2 of 19921961 Population from PCA 19611971 Population from Social and Cultural Tables1981 figures from Series Part-II A(I), General Population Tables – Census of India 1981.Figures of 1991 (including interpolated data for JK-1991 based on 2001 census) and 2001 from PCA census of India -2001
31 Trends in Gender Disparity in Literacy Rate YearMaleFemaleMale/FemaleLiteracy rate disparitySlightly more than half of total women are literate.Male-Female LRdisparity is ondecline.196140.415.30.45197139.518.40.38198156.329.70.35199163.839.40.28200175.854.10.21Source: Census of India various years
32 Area and Gender based Labor and Work Force Participation Rate (%) Labor force Work forceparticipation rates participation ratesRural maleRural femaleUrban maleUrban femaleSource: Economic Survey of India:
33 Area and Gender based Structure of Employment 2004-2005 Particulars Rural UrbanMale Female Male FemaleLabourForce % % % %Self empl % % % %RegularWage andSalaried % % % %Unempl.Rate % % % %Source: NSSO 62 Round
34 Gender based Distribution of Occupation in Rural India (%) 2004 Sector Male FemaleAgricultureCasualCultivatorsRegularNon FarmCasualSelf emplRegularTotalNot workingCasualSelf emp/cultivatorsRegular
35 Share of women employment out of total employment Share of women employment out of total employment in organized sector in IndiaYear% of women in Public sector% of women in Private sector% of women in Total199513.420.215.4200014.823.917.6200114.924.217.8200224.318.1200315.624.518.4200415.924.818.7200516.218.9Source : Quarterly Employment Review, Directorate General of Employment & Training, Ministry of Labor
36 Women wage lower than men by 33-40 points Women wage lower than men by points. Women-men wage differential is 0.75:1.The gender based wage differential though has narrowed down with increase in education level. It is still high.Urban wage differential persists but narrower than in rural area.
37 INDIA AND CHINAIndia China 2007 GDP (current US$billion) GNP PC (current US$) GDP growth Annual % 9.1% 13% Population growth rate (annual %) Mobile and cellular subscription Per ‘ooo population Internet user per ‘000 population 7 16 Source: World Bank: World Development Indicators: Country Profile April 2009
38 Situating India and China in World Trade (2007) Particulars Unit China IndiaShare in MerchandiseExports (%)RankImports (%)RankShare in Commercial ServicesExports (%)RankImports (%)RankSource: WTO- World Trade Statistics, April 2009Source: WTO, World Trade Statistics, April 2009
39 China India world Trade highlights 2007 Particulars China IndiaExports of good & services% of GDPImports of goods & services% to GDPTrade per capita($US, )Patents granted
40 China- Merchandise Trade 2007 Breakdown in economy's in total exports: total imports By main commodity group (ITS) (%) (%) 1.Agricultural products Fuels and mining products Manufactures: By main destination By main origin 1 European Union (27) Japan United States European Union (27) Hong Kong, China Korea, Rep. of Japan Taipei,Chinese Korea, Republic of China 9.0
41 India’s- Merchandise Trade 2007 Breakdown in economy's in total exports: total imports By main commodity group (ITS) (%) (%) 1.Agricultural products Fuels and mining products Manufactures: By main destination By main origin 1 European Union (27) European Union (27) United States China United Arab Emirates Saudi Arabia China USA Singapore United Arab Emi. 5.4
42 Trade in Commercial Services-2007 Breakdown in economy's total exports total imports (%) (%) China: 1. Transportation Travel Other commercial services India: 1. Transportation Travel Other commercial services
43 Cross Country Comparison Compared to a number of other Developing countries it can be seen that in India the share of manufacturing sector in GDP has been relatively low. Most of the major South East Asian countries and major Latin American countries have a significantly higher share. In China the manufacturing sector’s contribution is more than twice than of India.Source: World Development Indicators
44 Composition of Manufacturing Sector Across Countries Looking at the composition of the Manufacturing sector across some major developing countries, one can see that India focuses mainly on textiles, and chemicals.On the other hand several South East Asian countries have a big contribution from Machinery and Equipment. In countries like Malaysia and Korea more than 40 % of the Manufacturing output comes from Machinery and TransportChemicals include351 - Manufacture of industrial chemicals352 - Manufacture of other chemical productsFBT includesFood manufacturing313 - Beverage industries314 - Tobacco manufacturesMach and Transp include382 - Manufacture of machinery except electrical383 - Manufacture of electrical machinery apparatus, appliances and supplies384 - Manufacture of transport equipmentOthers33 - Manufacture of Wood and Wood Products, Including Furniture34 - Manufacture of Paper and Paper Products, Printing and Publishing353 - Petroleum refineries354 - Manufacture of miscellaneous products of petroleum and coal355 - Manufacture of rubber products356 - Manufacture of plastic products not elsewhere classified36 - Manufacture of Non-Metallic Mineral Products, except Products of Petroleum and Coal37 - Basic Metal Industries381 - Manufacture of fabricated metal products, except machinery and equipment385 - Manufacture of professional and scientific, and measuring and controlling equipment390 - Other Manufacturing IndustriesTextiles Include321 - Manufacture of textiles322 - Manufacture of wearing apparel, except footwear323 - Manufacture of leather and products of leather, leather substitutes and fur, except footwear and wearing apparel324 - Manufacture of footwear, except vulcanized or moulded rubber or plastic footwearSource: World Development Indicators
45 Manufacturing Exports: Cross Country Comparison Comparing with other developing countries, India has a higher share of manufactured exports than the Latin American countries but less than some of the South East Asian countries. Both Korea and China enjoy a far greater share of manufactured exports in their merchandise trade.Source World Development Indicators
46 Levels of Manufactured Exports Across Countries Looking at the level of manufactured exports we find that China is far ahead than other developing countries with an annual export of $542 billion in South East Asian countries like Korea and Malaysia also have significantly higher level of exports than India. Countries like Argentina and Indonesia have lower level of exports.Source World Development Indicators
47 Size of Labor Force in Manufacturing Sector The size of the labor force devoted to Manufacturing sector is much higher in China than India. In China number of people employed in Manufacturing is roughly three times that of India.Dr. Kumar – The number for India has been obtained using the NSSO report fro Since we are not using the other slide with NSSO employment data should we give this number?? RegardsAbhijit
48 Spending on R & D as a percentage of GDP (2003) DefinitionResearch and development (R&D) expenditures (as % of GDP) Current and capital expenditures (including overhead) on creative, systematic activity intended to increase the stock of knowledge. Included are fundamental and applied research and experimental development work leading to new devices, products or processes.India is among one of the lowest spender on R&D among major developing countries. Its share is almost one fourth of South Korea 60 percent of China. The US spends about 2.7 percent of its GDP on R&DHuman Development Report 2005
49 HUMAN DEVELOPMENT INDICATORS- (2006) Human Development Index ( Position among 179 countries) INDIA CHINA Particulars Rank Value Rank Value HDI Life expectancy at birth( yrs) Adult literacy rate (%) Combined(pri—ter)enrolment ratio GDP PC($PPP) Source: Human Development Report 2008
50 HUMAN POVERTY INDEX (HPI-1) -2006 Particulars India ChinaRank Value(%) Rank Value(%)HPIProbability ofNot surviving toAge 40 (% ofcohort)Adult Illiteracy Ratecontd.
51 HUMAN POVERTY INDEX (HPI-1) -2006 Particulars India ChinaRank Value(%) Rank Value(%)Children UnderWeight for age(% aged under6, )Population belowIncome Poverty line$1.25 a day$2 a dayNational poverty lineHPI-1 rank minusincomePoverty RankSource: Human Development Report-2008
52 Gender Related Development Index (GDI) Particulars India China GDI Rank Value % of HDI Rank Value % of HDI Male Female Male Female Life Expectancy At birth (2006) Adult literate ( ) Combined gross Enrol. Ratio (%) Estimated Earned Income (PPP US$) HDI rank minus GDI -1 1
53 Gender Empowerment Measure (GEM) 2007 Particulars India ChinaGEM RankRatio of estimatedFemale to maleearnings% to totalSeats in parliamentheld by womenFemale legislatures,Senior officials &ManagersFemale professionalAnd tech. workers
54 India-China comparative Business Scenario-2007 Particulars India China(Rank out of 183 countries-2008)Corruption perception indexProcedure (no) duration cost (% GNP) Procd Duration CostStarting a business days daysduration cost (as % of estate) Recovery rate duration cost recovery rate(cents per dollar)Closing a business 10 yrs yrsSource: Transparency international 2008
55 GLOBAL COMPETITIVENESS RANKING 2008-9: India and China (Rank out of 134 countries) Pillars Components India ChinaGCI Global Competitiveness IndexBasic requirementsInstitutionsInfrastructureMacroeconomic stabilityHealth and primary educationEfficiency EnhancerHigher education and trainingGoods market efficiencyLabour market efficiencyFinancial market sophisticationTechnological readinessMarket SizeInnovation and Sophistication factorsBusiness sophisticationInnovationSource: Global Competitiveness Report 2008
56 Major Areas of Reforms Needed Labour market: Stringent labour laws should be relaxedBusiness environment: Lowering the barriers to entrepreneurshipEnding reservation of products fro SSINeed for Bankruptcy lawDispersion of tariff ratesEasing of Service sector FDI restrictionsMore privatization of public sector enterprises.Financial sector: More liberalizationPrivatization of public sector banksInfrastructure : Electricity reforms to be speeded uptransport: More private sector involvementPublic Finances: Better targeting of subsidies, GSTEducation: Higher public expenditure on primary andeducation, Addressing financing of higher edu.India can learn from China in:Social and Physical InfrastructureImproving manufacturing sector’s productivity
57 In Conclusion India and China – non comparable: India-- Democracy (messy)Highly diverse social structureReforms reactionary in nature- a late starterLess integrated to Global market (including East Asia)Dissimilar trade patternLagging behind in FDI and infrastructureWeak link between economic development and socialwelfare at regional level compared to China.
58 Differencing Relative strengths India Chinai) Agriculture √reformsii) Industrial growth √iii) FDI √IV) Open to externaltrade √v) National market √vi) Service sector √ √vii) Infrastructure √viii) Capital efficiency √viii) Corporate governance √ix) Democratic accountability √x) Foreign portfolio capital √
59 Two divergent development Paths: India ChinaIncreasingly building ground up Top down approachService sector led growth Manufacturing sector and foreign tradePrivate sector led growth State led modernization (late 1970’s)(early nineties)Consumption driven Investment drivenv) Knowledge based sector-labor Cheap- assembly line workersvi) World’s back office Factory of the world
60 India China Domestic Private Companies FDI inflow State owned enterprisesYoung work force Aging workforceCheaper labour Rural reform
61 India- A country with Potentials for ‘sustaining’ development!! India’s hope!!!!No Trade off to democracy for 2% higher growth!Accumulated diversity not assimilated.Both India and China have accepted the capitalist road to prosperity but capitalism is more comfortable in democracy which fosters entrepreneurs.India’s growth may be more enduring as people have scripted its growth whereas in China it is state crafted.India- A country with Potentials for ‘sustaining’ development!!
62 “Because the Indian state is inefficient, millions of entrepreneurs have stepped in to vacuum. When government schools fail, people start private schools in the slums, and the result is millions of ‘slumdog millionaires’ .” You cannot do this in China!! Gurucharandas Times of India, 10 May 2009