Home to nearly two-fifths of humanity, India and China are two of the world’s fastest growing economies. Both countries have had common histories checkered with ancient civilizations, foreign invasions, imperialism, socialism and the recent phase of miraculous economic growth which has uplifted their world status. In 1820, China generated a third of world output and India about another 16%. By the mid-20th century, China’s share of output had fallen to 5% and India’s to 3%. During the 18th and 19th century, the two Asian countries fell far behind the rapidly growing economies of Western Europe and North America.
After gaining independence in the 1940’s, both countries adopted different political frameworks with India becoming the world’s largest democracy and China becoming a communist despotism. Despite having different political ideologies, both embraced similar economic ideas. Both had suffered exploitation, economic stagnation, impoverishment and innumerable injustices due to the so-called capitalist and free market policies of the imperialist forces. This had instilled a deep-rooted fear of capitalism. Both saw capitalism as an inefficient mechanism which perpetuated inequalities. The level of poverty and deprivation in both countries was staggering, with more than half the population being poverty-stricken.Moreover, during those days, the Soviet model of socialism was working wonders. The USSR witnessed rapid industrial development leading to record economic growth. There was a significant progress in poverty alleviation and achieving self-sufficiency. Hence, socialism was being highly romanticized and was considered to be the in thing.This blue eyed socialist romanticism along with the inherent dislike for capitalism led to both countries embracing socialist economies. On one hand China became a state controlled autarky, its policies reflecting extreme socialism i.e. (private sector was almost non-existent). Indian policies, on the other hand, were influenced by a more moderate form of socialism known as Fabian Socialism. Hence, India chose the path of a mixed economy where both the public and private sector were allowed to co-exist. However, the public sector was accorded the more dominant role in reviving the economy with the bureaucracy being put in charge of regulating the private sector.Unfortunately, the pursuit of self- sufficiency failed. By the 1970’s neither had begun to regain its historic position. Good intentions but bad policies, proper allocation but improper implementation, massive inefficiency of the corruption plagued bureaucracy was all to blame for this. Both economies were performing dismally. Hence, China took up reforms in 1978. The transition from state- controlled to market economy and from an autarky to international economic integration began, India (being the tortoise in this case), reluctantly took up partial reforms under Rajiv Gandhi in the 1980’s. Growth rates caught up, but weren’t sustainable. Huge Government borrowings were leading to high fiscal deficits and a worsening current account. The collapse of the USSR which was India’s major trading partner and the first Gulf war which caused a spike in oil prices caused a major balance of payment crisis for India. Hence, the New Economic Policy (NEP) initiating the process of liberalization was finally announced in 1991.
Reforms have helped in unleashing the massive potential of both the countries. Both have witnessed spectacular growth rates with India growing at 6% and China at 9% p.a. in the post reform period. However, the development models adopted by both differ enormously. India’s growth has been centered around the service sector boom making it a unique economy in many respects. China has followed the more conventional development path with its growth being driven by the manufacturing sector. Not discounting their spectacular performances, it can safely be said that both countries still have miles to go before establishing themselves in the big league. So the Indian elephant and the Chinese Dragon are yet to reach their final destination. Let’s see who does so first.Anusree Raha
[Image courtesy: http://www.flickr.com/photos/[email protected]/2316719280/]