1. Indian Economy : A Comparative Overview with China
ARTI NANAVATI PROF. OF ECONOMICS DIRECTOR, CENTRE FOR CANADIAN STUDIES MAHARAJA SAYAJIRAO UNIVERSITY OF BARODA
VADODARA GUJARAT-INDIA
DEPT. OF ECONOMICS, SIMON FRASER UNIVERSITY BURNABY, BC, CANADA
18 JUNE, 2009

2. Some General Facts
India 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% in
Major 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 etc
2)Industry *
2.1 Manufacturing
2.2 Construction
3) Services
3.1 Trade, hotel, Restaurants **
3.2 Transport, storage & communica
3.2 Finance, insurance, etc
3.3 Community, social and per
service
* Inclusive of2.1, 2.2, ** of 3.2. Source : EPW 14TH June , 2008 and Economic Survey of India
Source: EPW June 14, 2008

6. India- Structural Transformation-?
Economic policy: Approach
i) 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 between
In 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 account
Collapse 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 output
One 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 goods
petroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures
Main export partners
US 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 goods
crude oil, machinery, gems, fertilizer, chemicals
Main import partners
People'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 1990
The 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 Division
Agriculture and allied activities
Mining & Quarrying
Manufacturing
Electricity, gas and water supply
Construction
Trade , hotels and restaurants
Transport, Storage & communication
Finance, insurance, real estate and
business services
Social, community and personal services
Source: Economic Survey of India

15. Employment Share: Economically Active Adult population (%) 2004-2005
Agriculture
Labour
Cultivator
Farm regular
Non Farm Sector
Casual
Regular
Self employed
Source: NSSO, 62th Round

16. Structure of Employment

17. Growth of working class

18. Rural workers
Workers 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-farm
enterprises (both household and non-household) and, in return, received salary or wages on
a regular basis (i.e. not on the basis of daily or periodic renewal of work contract). This category
included not only persons getting time wage but also persons receiving piece wage or salary and
paid apprentices, both full time and part-time.
Casual wage labourer: A person who was casually engaged in others’ farm or non-farm
enterprises (both household and non-household) and, in return, received wages according to the
terms of the daily or periodic work contract, was a casual wage labourer.

19. Urban workers
There were nearly 63 million urban workers in Proportion of regular workers is more among urban workers when compared to rural areas

20. Wages
Wage rates defer between rural and urban areas and between males and females
Source: NSSO 62nd Round,
RM-Rural Male, RF-Rural Female
Data indicates sharp disparities between the male-female and rural-urban areas. The average wage rate for regular wage/salaried
employee, was Rs for males and Rs for females (rural) and Rs for the
males and Rs for the females (urban) and thus, male-female salary differential was
around 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 in
Of 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 workers
India 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

25. Public sector workers

26. Private sector workers

27. Is development inclusive?

28. Labour Market
Growing 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
Total
1901
979
910
972
1911
975
872
964
1921
970
846
955
1931
966
838
950
1941
965
831
945
1951
860
946
1961
963
845
941
1971
949
858
930
1981
951
879
934
1991
938
894
927
2001
901
933
Source : Office of the Registrar General, India
Sex Ratio (Total, Rural and Urban) from Brief Analysis of PCA paper-2 of 1992
1961 Population from PCA 1961
1971 Population from Social and Cultural Tables
1981 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
Year
Male
Female
Male/Female
Literacy rate disparity
Slightly more than half of total women are literate.
Male-Female LR
disparity is on
decline.
1961
40.4
15.3
0.45
1971
39.5
18.4
0.38
1981
56.3
29.7
0.35
1991
63.8
39.4
0.28
2001
75.8
54.1
0.21
Source: Census of India various years

32. Area and Gender based Labor and Work Force Participation Rate (%)
Labor force Work force
participation rates participation rates
Rural male
Rural female
Urban male
Urban female
Source: Economic Survey of India:

33. Area and Gender based Structure of Employment 2004-2005
Particulars Rural Urban
Male Female Male Female
Labour
Force % % % %
Self empl % % % %
Regular
Wage and
Salaried % % % %
Unempl.
Rate % % % %
Source: NSSO 62 Round

34. Gender based Distribution of Occupation in Rural India (%) 2004
Sector Male Female
Agriculture
Casual
Cultivators
Regular
Non Farm
Casual
Self empl
Regular
Total
Not working
Casual
Self emp/cultivators
Regular

35. Share of women employment out of total employment
Share of women employment out of total employment in organized sector in India
Year
% of women in Public sector
% of women in Private sector
% of women in Total
1995
13.4
20.2
15.4
2000
14.8
23.9
17.6
2001
14.9
24.2
17.8
2002
24.3
18.1
2003
15.6
24.5
18.4
2004
15.9
24.8
18.7
2005
16.2
18.9
Source : 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 CHINA
India 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 India
Share in Merchandise
Exports (%)
Rank
Imports (%)
Rank
Share in Commercial Services
Exports (%)
Rank
Imports (%)
Rank
Source: WTO- World Trade Statistics, April 2009
Source: WTO, World Trade Statistics, April 2009

39. China India world Trade highlights 2007
Particulars China India
Exports of good & services
% of GDP
Imports of goods & services
% to GDP
Trade 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 Transport
Chemicals include
351 - Manufacture of industrial chemicals
352 - Manufacture of other chemical products
FBT includes
Food manufacturing
313 - Beverage industries
314 - Tobacco manufactures
Mach and Transp include
382 - Manufacture of machinery except electrical
383 - Manufacture of electrical machinery apparatus, appliances and supplies
384 - Manufacture of transport equipment
Others
33 - Manufacture of Wood and Wood Products, Including Furniture
34 - Manufacture of Paper and Paper Products, Printing and Publishing
353 - Petroleum refineries
354 - Manufacture of miscellaneous products of petroleum and coal
355 - Manufacture of rubber products
356 - Manufacture of plastic products not elsewhere classified
36 - Manufacture of Non-Metallic Mineral Products, except Products of Petroleum and Coal
37 - Basic Metal Industries
381 - Manufacture of fabricated metal products, except machinery and equipment
385 - Manufacture of professional and scientific, and measuring and controlling equipment
390 - Other Manufacturing Industries
Textiles Include
321 - Manufacture of textiles
322 - Manufacture of wearing apparel, except footwear
323 - Manufacture of leather and products of leather, leather substitutes and fur, except footwear and wearing apparel
324 - Manufacture of footwear, except vulcanized or moulded rubber or plastic footwear
Source: 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?? Regards
Abhijit

48. Spending on R & D as a percentage of GDP (2003)
Definition
Research 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&D
Human 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 China
Rank Value(%) Rank Value(%)
HPI
Probability of
Not surviving to
Age 40 (% of
cohort)
Adult Illiteracy Rate
contd.

51. HUMAN POVERTY INDEX (HPI-1) -2006
Particulars India China
Rank Value(%) Rank Value(%)
Children Under
Weight for age
(% aged under
6, )
Population below
Income Poverty line
$1.25 a day
$2 a day
National poverty line
HPI-1 rank minus
income
Poverty Rank
Source: 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 China
GEM Rank
Ratio of estimated
Female to male
earnings
% to total
Seats in parliament
held by women
Female legislatures,
Senior officials &
Managers
Female professional
And tech. workers

54. India-China comparative Business Scenario-2007
Particulars India China
(Rank out of 183 countries-2008)
Corruption perception index
Procedure (no) duration cost (% GNP) Procd Duration Cost
Starting a business days days
duration cost (as % of estate) Recovery rate duration cost recovery rate
(cents per dollar)
Closing a business 10 yrs yrs
Source: Transparency international 2008

55. GLOBAL COMPETITIVENESS RANKING 2008-9: India and China (Rank out of 134 countries)
Pillars Components India China
GCI Global Competitiveness Index
Basic requirements
Institutions
Infrastructure
Macroeconomic stability
Health and primary education
Efficiency Enhancer
Higher education and training
Goods market efficiency
Labour market efficiency
Financial market sophistication
Technological readiness
Market Size
Innovation and Sophistication factors
Business sophistication
Innovation
Source: Global Competitiveness Report 2008

56. Major Areas of Reforms Needed
Labour market: Stringent labour laws should be relaxed
Business environment: Lowering the barriers to entrepreneurship
Ending reservation of products fro SSI
Need for Bankruptcy law
Dispersion of tariff rates
Easing of Service sector FDI restrictions
More privatization of public sector enterprises.
Financial sector: More liberalization
Privatization of public sector banks
Infrastructure : Electricity reforms to be speeded up
transport: More private sector involvement
Public Finances: Better targeting of subsidies, GST
Education: Higher public expenditure on primary and
education, Addressing financing of higher edu.
India can learn from China in:
Social and Physical Infrastructure
Improving manufacturing sector’s productivity

57. In Conclusion India and China – non comparable:
India-- Democracy (messy)
Highly diverse social structure
Reforms reactionary in nature- a late starter
Less integrated to Global market (including East Asia)
Dissimilar trade pattern
Lagging behind in FDI and infrastructure
Weak link between economic development and social
welfare at regional level compared to China.

58. Differencing Relative strengths
India China
i) Agriculture √
reforms
ii) Industrial growth √
iii) FDI √
IV) Open to external
trade √
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 China
Increasingly building ground up Top down approach
Service sector led growth Manufacturing sector and foreign trade
Private sector led growth State led modernization (late 1970’s)
(early nineties)
Consumption driven Investment driven
v) Knowledge based sector-labor Cheap- assembly line workers
vi) World’s back office Factory of the world

60. India China Domestic Private Companies FDI inflow
State owned enterprises
Young work force Aging workforce
Cheaper 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

63. THANK YOU