Republic of India भा�रत गणर�ज्य

• India, officially the Republic of India is a south asian country.

• seventh-largest country by geographical area.

• second-most populous country and the most populous democracy in the world.

• Bounded by the Indian Ocean on the south, the Arabian Sea on the west, and the Bay of Bengal on the east

• Coastline of 7500 kms, is bordered by pakistan in west, by china,nepal and bhutan in the north, and bangladesh and myanmar in the east.

• India is a republic consisting of 28 states and seven union territories• With world's third largest army with the ninth largest defence budget.

• It has the world's twelfth largest economy at market exchange rates and the fourth largest in purchasing power

• It has the world's twelfth largest economy at market exchange rates and the fourth largest in purchasing power.

• Market based economic reforms were from 1991.

People's Republic of China 中华人民共和国

• PRC- people’s republic of China, is the largest country in East Asia and the most populous in the world with over 1.28 billion people.(20% of world’s population.)

• It is a socialist republic ruled by the Communist Party of China under a single-party system and has jurisdiction over twenty-two provinces, five autonomous regions, four municipalities, and two largely self-governing Special Administrative Regions.

• China's importance in the world today is reflected through its role as the world's third largest economy nominally (or second largest by PPP)

• a permanent member of the UN Security Council as well as being a member of several other multilateral organizations including the WTO, APEC, East Asia Summit, and Shanghai Cooperation Organization.

• it is a nuclear state and has the world's largest standing army with the second largest defense budget.

• Market based economic reforms were from 1978.• world's second largest exporter and the third largest importer of goods• Rapid industrialization has reduced its poverty rate from 53% in 1981

to 8% in 2001.

Economy of India• from the 1950s until the 1980s, India followed socialist-inspired policies. The economy

was shackled by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth

• Since 1991, the nation has moved towards a market-based system.

• The policy change in 1991 came after an acute balance of payments crisis, and the emphasis since then has been to use foreign trade and foreign investment as integral parts of India's economy.

• With an average annual GDP growth rate of 5.8% for the past two decades, the economy is among the fastest growing in the world.

• It has the world's second largest labour force, with 516.3 million people.

• In terms of output, the agricultural sector accounts for 28% of GDP; the service and industrial sectors make up 54% and 18% respectively.

• A Goldman Sachs report predicts that "from 2007 to 2020, India’s GDP per capita will quadruple," and that the Indian economy will surpass the United States by 2043.

• but India "will remain a low-income country for several decades, with per capita incomes well below its other BRIC peers.

Currency1 Indian Rupee (INR) (₨) = 100 Paise

Fiscal year April 1–March 31

Trade organisations WTO, SAFTA

Statistics

GDP $3.305 trillion (2008 est.)

GDP growth 9% (2007)

GDP per capita $2,600 (PPP)

GDP by sectoragriculture: 17.8%, industry: 29.4%, services: 52.8% (2007 est.)

Inflation (CPI) 0.44% (CPI) (March 2009)

Populationbelow poverty line

27.5% (2008 est.)

Labour force 516.4 million (2007 est.)

Labour forceby occupation

agriculture: 60%, industry: 12%, services: 28% (2003)

Unemployment 7.2% (2007 est.)

Main industries

textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, services

External

Exports$163 billion[4] (Financial Year 2007-2008)

Export goods

petroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures

Main export partnersUS 15%, the People's Republic of China 8.7%, UAE 8.7%, UK 4.4% (2007)

Imports $230.5 billion f.o.b. (2007 est.)

Import goodscrude oil, machinery, gems, fertilizer, chemicals

Main import partnersthe People's Republic of China 10.6%, US 7.8%, Germany 4.4%, Singapore 4.4%

Public finances

Public Debt $149.2 billion (2007)

Revenues $141.2 billion (2007 est.)

Expenses $172.6 billion (2007 est.)

India- Percentage of population living under the poverty line of $1 (PPP) a day, currently 356.35 rupees a month in rural areas (around $7.4 a month).

India- The number of people employed in non-agricultural occupations in the public and private sectors. Totals are rounded. Private sector data relates to non-

agriculture establishments with 10 or more employees

Economy of China(PRC)

• From its founding in 1949 to late 1978, the People's Republic of China was a Soviet-style centrally planned economy.

• Private businesses and capitalism were suppressed. To propel the country towards a modern, industrialized communist society, Mao Zedong instituted the Great Leap Forward. (a major economic failure and a great humanitarian disaster.)

• In 1978, Deng Xiaoping initiated the PRC's market-oriented reforms under one-party rule.

• Collectivization of the agriculture was dismantled and farmlands were privatized to increase productivity.

• A wide variety of small-scale enterprises were allowed to flourish while the government relaxed price controls and promoted foreign investment.

• Foreign trade was focused upon as a major vehicle of growth, which led to the creation of Special Economic Zones (SEZs) first in Shenzhen (near Hong Kong) and then in other Chinese cities

Deng Xiaoping

Statistics

GDP (Nominal) (2007) $3.42 trillion (ranked 3rd) (2008) $4.33 trillion (official data)

GDP (PPP) (2008) $7.8 trillion (ranked 2nd)

GDP per capita (Nominal) (2008)

$3,180 (ranked 104th)

GDP per capita (PPP) (2008) $6,100 (ranked 105th)

GDP growth rate (2008) 9.0% (official data)

GDP by sector (2008) agriculture (primary) (11.3%)industry (secondary) (48.6%)services (tertiary) (40.1%)note: industry includes construction (5.5%)

GDP by components, % (2006) Private consumption (36.4)Government consumption (13.7)Gross fixed investment (40.9)Exports of goods/services (39.7)Imports of goods/services (-31.9)

Domestic demand growth (2002-06 av)

9.3%

Interest rates (2007-12-20) One-year benchmark deposit rate: 4.14%One-year lending rate: 7.47%

Inflation rate (CPI) 4.9% (CPI: 8.7%, Feb 07 - Feb 08)4.5% (2007 av)1.7% (2006 av)

Household income or consumption by percentage share (2004)

lowest 10%: 1.6%, highest 10%: 34.9%

Population below poverty line (2004) 10%

Gini index (2004) 46.9 (List of countries)

Labor force (2008) 807.7 million

Labor force by occupation (2006) agriculture (43%), industry (25%), services (32%)

Unemployment rate (2006) 4.3% (official); 17% (unofficial)

Industrial production growth rate (2006) 22.9%

Main industries mining and ore processing, iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites

Public debt (2006) 22.1% of GDP

External debt (2006) $315 billion

Foreign exchange reserves (2008) $1.95 trillion

Foreign exchange reserves excl gold (2007)

N/A

Revenues (2008) $868.6 billion

Expenditures (2008) $850.5 billion; including capital expenditures of $NA

Budget balance (2006) -7.0% of GDP (deficit)

Corporate income tax rate (2006) 33% (official)

Economic aid recipient (ODA) N/A

Economic aid donor

Nominal GDP from 1952 to 2005.

Economy of China continues…

• Since economic liberalization began in 1978, the PRC's investment- and export-led

economy has grown 70 times bigger.

• The primary, secondary, and tertiary industries contributed 11.3%, 48.6%, and 40.1% respectively to the total economy.

• It is a member of the WTO and is the world's third largest trading power behind the US and Germany.

• Its foreign exchange reserves have reached US$1.9 trillion, making it the world's largest.

• The PRC's success has been primarily due to manufacturing as a low-cost producer

• This is attributed to a combination of cheap labor, good infrastructure, medium level of technology and skill, relatively high productivity, favorable government policy, and some say, an undervalued exchange rate.

• yuan having been de-pegged and risen in value by 20% against the US dollar since 2005.

• The state still dominates in strategic "pillar" industries (such as energy and heavy industries), but private enterprise (30 million private businesses) . now accounts for approximately 70% of China's national output, up from 1% in 1978.

• Its stock market in Shanghai (SSE) is raising record amounts of IPOs and its benchmark Shanghai Composite index has doubled since 2005.

• SSE's market capitalization reached US$3 trillion in 2007 and is the world's fifth largest exchange. China now ranks 34th in the Global Competitiveness Index..

• The PRC's growth has been uneven when comparing different geographic regions and rural and urban areas.

• The urban-rural income gap is getting wider in the PRC. Development has also been mainly concentrated in the eastern coastal regions while the remainder of the country are left behind.

• The economy is also highly energy-intensive and inefficient – it uses 20%-100% more energy than OECD countries for many industrial processes.

• It has now become the world's second largest energy consumer behind the US but relies on coal to supply about 70% of its energy needs

PPP GDP Shares of Major Economies in 2004

China13% India

6%

USA21%

Euro Area15%

Japan7%

Rest of the World38%

Contrasting Development Models

• China– Manufacturing-led– GDP shares: industry 46%, services 41% (2005

National Economic Census)– East Asian Model?

• India– Services-driven– GDP shares: industry 27%, services 52% – New growth paradigm? (leapfrog

industrialisation stage)

25

30

35

40

45

50

55

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

China India

Share of industry in GDP

25

30

35

40

45

50

55

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

China India

Share of services in GDP

Why the difference?

• different saving rates– Currently, China saves nearly half of its GDP,

India saves 28%– Historically, saving rate was also much higher

in China

• Other forces at work, e.g.– China’s industrial policy– India’s over-regulated labour market

Gross National Saving Rates

15

20

25

30

35

40

45

50

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

China India

Imbalances: China• High savings curtails consumption

– Reliance on investment expansion increased growth volatility

– Diminishing returns misallocation of capital non-performing loans

– Excess capacity deflation

• Insufficient domestic absorption– Reliance on export expansion– Trade disputes incite protectionism in major

export markets

Imbalances: India• Lack of investment funds led to neglect of

infrastructure– High production costs stunted manufacturing sector

will eventually constrain the growth of high-tech centres

• IT and IT-enabled services are skill-intensive, rather than labour-intensive– Jobless growth: rural unemployment and poverty

– Lack of progress in urbanisation

Shares of public saving in total saving

-20

-10

0

10

20

30

40

50

60

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

China India

Private savings have risen in both countries

0

5

10

15

20

25

30

35

40

45 % of GDP

China India

Demographic Dividend

0

5

10

15

20

25

30

35

40

45

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

0-14, China

0-14, India

over 65, China

over 65, India

% of total population

Comparing Indian and China- for investments

• In 1978, per capita incomes in China and India were roughly equal. As a result of a conscious decision to integrate into the world economy, China’s per capita income is more than twice that of India. China, the world’s emerging manufacturing center, saves and invests twice as much as India, is twice as open, attracts nearly ten times the annual FDI flow, and has a substantially smaller budget deficit and larger foreign exchange reserves. And China has done a better job at poverty alleviation .

• As a result of China’s one-child policy, a key question is whether growth will slow to around 6% per annum in roughly ten years and whether India’s total output will exceed China’s in 25 years. Given China’s head start, outward orientation, rate of urbanization (which facilitates economic activity) and dramatically superior infrastructure, such an outcome is unlikely

• But a simple calculation—GDP growth rate divided by investment as a percentage of GDP, suggests that capital is much more efficiently employed in India, given India’s service orientation. The experience of Japan in the 1990s, and indeed the that of Asian tigers (where long-term equity returns have in general been modest in many cases), shows that very low costs of capital and high investment rates can lead to the misallocation of capital. India’s English-speaking heritage, common law traditions and parliamentary system provide a check to both government and

• corporate abuse, and enhance the prospect of obtaining higher long-term equity market returns than in China, even if China remains the more dominant economy.