Economic Reforms in China and India: 7 Major Issues

The following points highlight the seven major issues of economic reforms in China and India. The issues are: 1. Human Development 2. GDP 3. Industry 4. Privatisation 5. Agriculture 6. Foreign Investment 7. Exports.

Issue # 1. Human Development:

Although both the countries have adopted the policy of economic reforms with a similar objective in mind for attaining a higher level of development and living conditions but the policy pursued in their reform programme are quite divergent.

The divergent path followed by these two vastly populous countries have resulted divergent results in attaining better quality of life and development, the adult literacy rate (age 15 and above) in China at present is 82.8 per cent as against 55.7 per cent in India.

Infant mortality rate in China is 38 per thousand live births as against 69 per thousand in India. Percentage of people not likely survive to the age of forty is only 7 in China as compared to that of 16 in India. The number of doctors per one lakh population is 115 in China as compared to that of only 48 in India.

Maternal mortality ratio (per one lakh live births) is 65 in China as compared to that of 410 in India. Again the percentage of people living below the poverty line is 26 per cent in India as compared to only 6 per cent in China.

Issue # 2. GDP:

Twenty years of economic reforms have resulted in vibrant economic growth in China. As per the China’s State Statistical Bureau, the GDP of China at current prices has increased from 362.4 billion Yuan (US $ 43.49 billion) in 1979 to 7,477.2 billion Yuan ($ 897.26 billion) in 1997. This has resulted in attainment of annual average growth rate of 9.8 per cent in China during this period.

In contrast, the GDP in India had recorded increase from Rs 1,36,013 crore (US $ 27.20 billion) in 1980-81 to Rs 10,87,457 crore ($ 217.49 billion) in 1995-96 showing an annual average growth rate of 4.7 per cent during the last 20 years.

Issue # 3. Industry:

Since the introduction of economic reforms and opening up of the economy, the industrial sector in China has been recording a high growth rate. As per official report, the industrial sector in China has recorded an annual average growth rate 12.0 per cent during the period 1978 to 1997 as compared to that of hovering only between 6.5 to 7.5 per cent in India during the same period.

This has become mostly possible in China due to enlarging the decision making powers of the enterprises, relaxation of controls on functioning of industrial enterprises, privatisation of enterprises and also from the inflow huge volume of foreign capital. Moreover, China is also successful in raising its overall industrial technological and equipment level satisfactorily.

On the contrary, the reform programmes in industrial sector in India have been slowed down considerably over the years. Liberalisation measures and relaxation of controls on Indian industry is far from satisfactory and it is still only on paper in reality. To get an industrial license one has to pass through a long barrier instead of a single-window clearance.

There are still many constraints on flow of foreign capital and technology into the country. The public sector reforms is also very slow and the disinvestment process is also remained unsuccessful. The technology level of Indian industry is also lagging behind 30 to 40 years from that advanced countries.

Issue # 4. Privatisation:

In respect of privatisation, China has shown keenness to accelerate its pace and thereby the country is now having 13 million private farms with a combined capital of $ 90 billion. The output produced by private firms in China constitutes 20 per cent of its industrial output and 37 per cent of its total consumer goods.

The expansion of private business and industry has been done at a point of time when millions of workers are in a process of being laid-off from loss-making state sector enterprises, which are now following the process of restructuring, In Shanghai, the largest city and industrial base of China, about 94,000 private enterprises fruitfully hired a total of 1,20,000 laid-off workers from the state sector.

Moreover, almost all retrenched workers have engaged themselves elsewhere in new jobs in collective and private businesses or become self-employed. In China, there are now about 16 million people engaged in the private sector.

Moreover, China has also been encouraging its own companies to invest abroad. Accordingly, such investment made abroad by Chinese companies exceeds $ 7 billion on about 9,000 enterprises and trading companies spread over 160 countries. Such move has helped China to switch over from labour-intensive to capital-intensive technology.

On the contrary, India has not been so much successful in expanding its private sector. Entry of new private enterprises and the expansion of existing units have been proceeding at a slow pace. In respect of investment made abroad by private enterprises, India has just initiated the process and gaining success in the area of information technology, food processing etc.

The Budget 2001-2002 allows an almost free hand to the Indian industry to go abroad, invest and set up shops for competing globally so as to boost the confidence of Indian entrepreneurs.

Issue # 5. Agriculture:

In respect of agriculture, China has also recorded a robust growth during the last two decades. In China rural reforms along with agricultural reforms are going side by side with industrial reforms. Whereas, in India, reforms of our agricultural sector are yet to be discussed properly.

The average annual growth of agricultural output in China has hovered around 6.7 per cent during the last two decades. But in India the same annual average growth rate of agricultural output hovered around 2.67 per cent during the last two decades.

After reforms China has been able to reap good grain harvests which peaked the level of 500 million tonnes in 1996. In comparison to that India has attained a peak level of food grains output to the tune of 208.9 million tonnes in 1999-2000.

One point that should be taken into account that although the landmass of China is bigger than that of India but the extent of arable land available to China is almost half to that of India. Although India became self-sufficient in food front but the agricultural sector is not growing at a required pace to reach that expectation and also to meet the growing needs of food from our rising population.

While the Chinese are entering into an era of foreign investment in the agricultural sector in a big way and has already attracted foreign investment in large volume, India has just stepped into path of reforms in agriculture and accordingly placed the National Agricultural Policy Resolution, 2000 on 28th July, 2000.

Even today we could not remove all restrictions on movement of food grains within the country which is a basic condition for improved marketing. The Union Budget, 2001-2002 has proposed to review the Essentials Commodity Act; 1955 for removing many such restrictions, which is very much important for providing incentive to farmers.

Although China is having just half of the arable land which India possess but China has managed to produce almost five times the grain output produced in India. This simply shows that the productivity per hectare in China is much higher than that of India. This simply reflects on our poor agricultural technology.

Issue # 6. Foreign Investment:

Another most striking difference in the reform process lies in the area of foreign investments both in terms of quantity and quality. In terms of quantity China is the largest recipient of foreign direct investment (FDI) among all the developing countries. In 1999, the FDI inflows in China was to the extent of US $ 40,400 million as compared to that of only $ 2,168 million in India.

While the share of China in attracting FDI among all developing countries was 19.4 per cent but the said share for India was only 1.0 per cent.

Again about 87 per cent of FDI inflows in India is in the area of cross-border merger and acquisition (M&A) sales, used by MNCs to buy existing companies or to raise their equity stakes and only 13 per cent of FDI comes for setting up new productive enterprise, i.e., green field investments.

But in China only about 25 per cent of FDI comes in the area of M&A and the remaining 75 per cent comes in the area of green-field investments.

Moreover, the portfolio investment, which has instinct for speculative profit and does not create any industry and employment, has a potential to wreck havoc on the economy of developing countries. Such portfolio investment constitutes an insignificant portion of foreign capital flows in China, i.e., 5.9 per cent in 1998 whereas this portfolio investment constitutes about 66.4 per cent of the foreign capital flows in India.

Thus it is found that China is very much successful in attracting both good quantity and quality of foreign capital flows for the benefit of her economy whereas India has failed both in terms of quantity and quality.

Issue # 7. Exports:

In respect of exports, China has also improved its position during 1990s. The share of China in world exports increased from 1.95 per cent in 1990 to 2.78 per cent in 1996 as a result of rise in its exports volume by 142 per cent during the reference period. But India’s share of world export shown a marginal improvement from 0.56 per cent to 0.60 per cent during the same period, showing a rise in its export by 80 per cent.

Thus the performance of export sector in India is lagging far behind that of China.

Thus we have seen that the results of economic reforms realised by India is quite different than that of China. China’s performance has surpassed India’s performance in almost all directions. But everything is not alright with the Chinese economy.

China has also its problem of over-population, unemployment, poverty and corruption is also rampant. Even then China has made it possible to reap maximum benefit from economic reforms.