Comparison of Economic Development Approaches: China and India

Introduction to Economic Transformations

In 1978, China, under Deng Xiaoping, shifted from a centrally planned economy to one that embraced foreign investment, private sector growth, and rapid exports. India, however, implemented major policy changes later in 1991, focusing on delicensing, financial reforms, and global economic integration.

Economic Growth and Manufacturing Sector

• From 1978 onwards, China’s per capita GDP rose rapidly, exceeding India’s, and by 2024, it was approximately five-and-a-half times India’s per capita GDP.
• China’s manufacturing sector has been a major growth driver, accounting for 28-30% of global manufacturing in 2023, in contrast to India’s 3% share.

Private Sector Development

• Post-1978, China's private sector emerged from new entrants with technological skills, initially not envisioned by the central government.
• India had significant private enterprises even before liberalization, but the existing large conglomerates constrained new entrants in manufacturing.
• India’s newcomers primarily excelled in the services sector, like information technology.

Government Support and Policy Recommendations

• The significance of governmental focus on supporting new enterprises rather than established conglomerates is emphasized for growth stimulation.
• India’s Make in India scheme is backed by a $36 billion budget, whereas China's counterpart involved $330 billion, highlighting the disparity in public spending.

Role of Local Authorities

• In China, local authorities played a crucial role in supporting new entrepreneurs, often independently of central policies.
• In India, the central government holds significant control over financing, which favors large conglomerates.
• Empowering local governments and municipalities in India is suggested to foster local entrepreneurship.

Research and Development (R&D) Investment

• R&D investment in China increased from 0.75% in 1999 to 2.4% of GDP by 2020, while India's declined from 0.85% in 2008 to 0.64% in 2020.
• China successfully integrated research institutions, enterprises, and top universities, which India needs to emulate.

Constraints and Areas for Improvement

• India, being a democracy, cannot replicate China’s authoritarian practices but should focus on reducing bureaucratic delays and enhancing state and municipal roles in industrial promotion.
• Enhancing R&D initiatives and pressurizing private enterprises to increase investments in R&D is vital.
• Improving the quality of education is highlighted as crucial for fostering innovation and growth.