India-China Growth Rate Comparison

The Economist has a cover story on India's recent acceleration in economic growth, and how irrational exuberance among excitable Indians has led to an unsustainable overheating and the risk of a correction. 

One chart that I have sought for years is a comparison of the historical growth rates between India and China.  This article had that chart, going back to 1974.  Both nations had pathetic growth between 1950 and 1970 (and were indeed even poorer than most African nations at the time).  Since 1980, however, China's lead over India has ranged from large to enormous, with India only (maybe) breaking away from the the 6% trendline now.  As a result, China has gone from being poorer than India in the 1970s to having over twice the per capita income today.  Even now, the narrowing of the gap is questionable at best, as India is amazingly unable to fully cash in on the democratic system that China lacks.   

What prevents India from making common-sense reforms and infrastructure upgrades that the rest of the world has been telling them about for decades?  India's cultural limitations are the primary reason - most of India's key politicians are over the age of 70 and hail from an era and ideology that produced little other than poverty, embarassment, and misery.  Their passing will remove the ideological glass ceiling that prevents further reforms in India.  When any country achieves faster economic growth, it is not just wealth that rises, but intellectual maturity, the quality and diversity of entertainment options, and safety rise as well.  People even become taller and better looking after a generation of economic growth.  I will write a much more colorful article on this subject in the future. 

Update : CNNMoney has an article that is somewhat harsher, but some of the author's statements are poorly reasoned.  Statements 'India has more HIV infected people than any other country' are meaningless unless taken as a percentage of the total population, in which India does not appear anywhere near the top of the list. 

Update 2 : BusinessWeek also has an article.

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Comments

[Chuck]

But then the fact that all these old socialist politicians are getting up there means that some of them will retire, some will be pushed out by younger, better educated, politicians who have had some experience in business, ans some will be brought down by nature's own "term limitation".

As long as India's economy growing there is hope. Even if Indian's are over exuberant or over complacent about their position relative to China; even if they experience a correction, they are still headed in the right general direction. In addition to this, do they not have some things going for them that might not be captured by raw economic indicators? Their film industry and service sectors are more developed so that if they can make even modest progress in liberalizing their manufacturing sector they would have an economy that is less vulnerable to recessions and crisis, no?

While it is sad to see India not taking full advantage of its strengths (yet) and seeing the undemocratic nation of China doing better, I have read studies which claim that the longer a nation remains Democratic the more open and globalized its economy becomes (with some short term setbacks expected). What begins as a catch 22, where no democracy means no prosperity and no prosperity means no democracy, turns into a virtuous circle when reforms get under way which is hopeful for both China and India.

Is India riding to high in the saddle given its position relative to China? Likely. But in the long term, I have more confidence in India than China. Economic reforms are going to be far easier for India than political reforms will be for China. And China has a lot of work to do on economic reforms themselves, as, I seem to remember, you have mentioned in your piece about the US remaining the only real superpower on the block till at least 2030. China's current growth may very well be fueled by having done the easy reforms sooner than India and continuing the growth may be difficult for them to maintain.

I guess I am not disputing the facts or even the conclusion of your post that India is not doing its best but I still think it is doing very well and is helping to lift large numbers of people out of poverty and continuing to spread the phenomenon of economic development beyond their borders to less developed nations.

[GK]

Chuck,

I agree that India is doing well relative to almost every other major country in the world. Since 1985, it's growth has indeed been significantly higher than the world average (4%).

But that it is so much lower than what it *could* be, and it is lower because of getting the *basics* wrong, is what is frustrating.

Maybe I'll tweak the article a bit.

[dougjnn]

GK--

Very interesting site, which I just discovered today.

Do you anywhere give any clue as to in what area your "day job" is?

My guess is that you're a Wall Street Quant.

(For those unfamiliar, computer/math whizes who create models which can create a profitable edge for usually fairly brief periods for the employing investment bank, in such financial engineering mechanisms as derrivates, structured debt instruments, swaps and arbitrage generally.)

[dougjnn]

GK--

I do think you're probably a bit too optimistic, but also that the future is more likely closer to some of what you're predicting than the usual MSM pessimism.

[GK]

dougjnn,

Thanks. I am actually a mid-level exec. in Silicon Valley. But I still frequently toy with the idea of transitioning to a hedge fund.

I am optimistic about economic growth, technological change continuing to accelerate in multiple fields, and free markets solving many current problems. I am pessimistic about the risk of future terrorist attacks, major pandemics, and the ideological drift of the far-left.

[Chuck]

"I am pessimistic about the risk of future terrorist attacks, major pandemics, and the ideological drift of the far-left."

The risk of future terrorism is high but given what came of 9-11 (a somewhat lengthening of a natural recession) and the economic effects of the tsunami and Katrina, it would seem that terrorism and other disasters seem to have minimal temporary effects on the progress of the global economy. Though jihad will continue long after Iraq and Afghanistan are history (just as we still have Maoist and Marxist insurgents around the world) we can squeeze them out of civilization over time.

Pandemics: a problem but even the knowledge of hydration therapy can save vastly larger numbers of people these days and our medical resources like anti-viral, iRNA and countless others are progressing far faster than the viruses are. The Ideological drift of the left is the most worrying but given how poorly the NYT stock and revenue is doing compared to the New York Post and given how poorly other left-wing media are doing and that the congress now has a lower approval rating than Bush does, the drift of the left may not be such a bad thing. Maybe it will be replaced with the Libertarians as an opposition. (I can dream can't I?)

[jeffolie]

India Finds Its Economy on the Verge of Overheating

MUMBAI, India, Feb. 8 — With breakneck growth, an outsourcing industry that leads the world and hundreds of millions of consumers demanding more class and comfort, India has an economy many countries would envy.

http://www.nytimes.com/2007/02/10/business/worldbusiness/10overheat.html?ref=business#articleBodyLink
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India's Economy on Fire, or Overheating?
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Santosh Verma for The New York Times
A housewife checks the selection and prices of rice in a grocery shop in the central suburbs of Mumbai.
But now, after three years of near double-digit growth, signs of a potentially dangerous inflationary spiral are beginning to emerge. Prime Minister Manmohan Singh and his closest economic advisors gathered just last weekend over fears that India’s extraordinary economic expansion was starting to overheat, an issue they labeled as a “key short-term priority.”

They may have waited too long. Food prices are climbing for everything from lentils to onions, squeezing the poor. Apartment rents and prices are rising steeply, especially in large cities. Factories that make the country’s increasingly ubiquitous motorcycles are running at full tilt and have still fallen weeks behind in meeting orders from dealers.

Inflation in India remains much lower than in many developing countries. But prices are rising more than twice as fast as in China, India’s archrival for foreign investment and economic leadership among emerging markets. Prices are also increasing considerably faster than in industrialized countries.

That has put the onus on government leaders to try steering the economy, which is expected to expand by as much as 10 percent this year, away from a possible escalation of inflation pressures that could derail some of their achievements and temper the country’s climb in living standards.

“There is a recognition of these pressures and there is virtual unanimity that these have to be managed,” Y. Venugopal Reddy, the governor of the central bank, said in an interview this week. On Jan. 31, the central bank raised an important short-term interest rate by a quarter-point, to 7.5 percent, to help stem inflation.

Mr. Singh, Mr. Reddy and other senior officials have repeatedly reaffirmed their commitment in recent days to the market-oriented policies that have helped to triple the economy’s growth rate since the early 1990s.

But rising prices are starting to rekindle some nostalgia for the 1980s, when India had one of the world’s most highly regulated economies. “You have to ensure some amount of price regulation,” said Suhel Seth, a prominent political commentator and marketing consultant. “Under the guise of a free market, you’ve created a free fall for the poor.”

Some of the largest increases in food prices have been here in Mumbai. This is an industrialized peninsula where food is brought in over long distances by truckers who have had to pay much more for diesel fuel over the last year as the Indian government has passed on part of the increase in world oil prices.

Navalben Nagda, a retired shopkeeper in northern Mumbai, shopped for milk this week in a green sari but complained that she and her husband had been forced to change their purchasing habits.

“We buy lower-quality food now because that’s all we can afford,” she said. “It doesn’t taste as good.”

Wholesale price inflation has accelerated to 6 percent from 4 percent last spring. Consumer price indexes have risen nearly 7 percent in urban areas over the last year and almost 9 percent in rural areas, where more than two-thirds of the population live and where higher food prices are having the biggest effect.

Government economists attribute rising food prices in India to global factors like a poor harvest in Australia, the growing use of crops to produce ethanol and a higher cost of diesel for tractors. But many here link the increase to the government’s encouragement of futures trading in agricultural commodities, and the government has responded this winter by limiting a few types of transactions involving food.

[Tushar D]

I do not understand the sudden influx of articles doubting India's future prospects. None of these publications (Economist, NYT etc) have ever hyped India the way they hyped China over the years. They were also quite willing to gloss over China's risk factors. But they seem to be quite interested in publicizing India's risks and failings. What gives?

[GK]

Tushar,

The Economist is somewhat fair and balanced. They say India can grow 7% a year, but not more than that without major reforms and changes. I agree there.

But the NYT is very left wing, and thus very much against India as a pro-US country. They favor China due to Communism and its opposition to the US, where India is a potential ally to the US, and thus contrary to the NYT agenda.

[praveen]

with the graph, one can easy to understand india is always behind except 70, it is going similar todays

[Sanket]

If we check "The Economic Freedon of the World" indices than India was always more economically free than China. According to the "Index of Economic Freedom", India's ranking has been higher than China for 4 of the last 5 years. But starting from similar levels, today China's per capita income is double that of India. IN 1949, when the current state of India was formed and the current government of China came to power, India had a better industrial base, a highly professional bureaucracy,and much lesser war and riot-related casualities. In the 60 years since then, China has seen more turbulence than India. But China is way ahead in GDP(total and per capita).

China has 29 companies n Forbes 500 and out of that 25 are state-owned. All mainland based companies in Forbes 500 are state-based. Its financial sector is almost completely state-owned. So much for death of socialism (government ownership) in China. In my humble view, the disparity in China's and India's performance can be tracked to the greater nationalism in China. Greater nationalism leads to better governance and articulation of pro-common national objectives.

[vijay]

according to me its very difficult to say that china is more better in this manner because india is also a fast growing country.................