NIRMA UNIVERSITY

INSTITUTE OF LAW

A PROJECT SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE

FIVE YEARS INTEGRATED DEGREE OF LAW HONOURS

ON

India & China - Global Economy Drivers

ECONOMICS -III

SEMESTER-IV

JANUARY 2013 TO JUNE 2013

SUBMITTED TO SUBMITTED BY

Mrs. Lucky Mishra Hardik Sharma

Roll no. 11BAL094

Semester IV

B.A.LL.B (Hons.)

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Declaration

The text reported in the project is the outcome of my own efforts and no part of this report has

been copied in any unauthorized manner and no part in it has been incorporated without due

acknowledgment.

Date:-15/03/2013

Roll No. 11BAL094

Name & Signature of the Student

_____________________________

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Certificate

This is to certify that Hardik Sharma(11bal094) a student of IV Semester of Institute of Law,

Nirma University has completed this project on the Comparative study of India China Economy

for the subject of Family Law I as a part of their course. This is original work done under my

guidance & Supervision.

Date:

-------------------------

Mrs. Lucky Mishra

Asst. Prof

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Acknowledgement

I take the opportunity, while presenting this project report; to express my deep gratitude to all

those who offered their valuable help to me in completing this project successfully. A number of

people provided me with their assistance, encouragement and enthusiasm. Without them this

project would not have been possible.

First of all I am extremely grateful & thankful to the Nirma University, Institute of Law,

Ahmadabad, for instilling in us new & lively subjects which are practically observed in the

Society today.

I am extremely thankful to Asst. Prof. Lucky Mishra ma’am for giving the view of this

wonderful topic and helping me in the completion of this project. Sir has always been a

perennial source of information for us and has always inspired me to embark upon this venture.

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Table of Contents

S. no. Topic Page no.

1 Introduction 6

2 Literature Review 7

3 Research Objective 8

4 Research Questions 8

5 Statement of Problem 8

6 Research Hypothesis 9

7 Research Methodology 9

8 Chapter 1- “Economy Overview” 10

9 Chapter 2- “India-China Trade Relations” 13

10 Chapter 3- “Comparison Between India And China” 15

11 Chapter 4- “Conclusion” 20

12 References 22

INTRODUCTION

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China and India are leading the shift in the centre of economic gravity towards Asia, and the

economic prospects of economies throughout the world have become increasingly dependent on

sustained demand in the two Asian giants. Continued success cannot be taken for granted,

though. We know from history that growth trajectories are not sustained on autopilot.

Both, India and China are the fastest growing and largest emerging markets economies. In fact,

according to Economic Times dated 23rd March 2011, in the very recent visit to India, billionaire

Warren Buffet has described India as a ‘large market’ and not an ‘emerging market’. These

two countries account for almost one third of the total population of the world and in recent

times, have also contributed to the majority of world GDP growth. For the past two decades,

China has been growing at an astounding 9.5% a year, and India by 6%. Given their young

populations, high savings, and the sheer amount of catching up they still have to do, most

economists figure China and India possess the fundamentals to keep growing in the 7%-to-8%

range for decades. As per the estimates of leading economists, within three decades India should

surpass Germany as the world's third-biggest economy. By mid-century, China should have

overtaken the U.S. as No. 1. Going by the trends of manufactures and service outputs, China and

India could account for half of global output. It has been observed that the two countries are

becoming important and powerful as they complement each other's strengths. An accelerating

trend is, that technical and managerial skills, in both China and India are becoming more

important than cheap assembly labour. China will stay dominant in mass manufacturing, and is

one of the few nations building multibillion-dollar electronics and heavy industrial plants. India

is a rising power in software, design, services, and precision industry. World over, every country,

developed and developing have realised that both India and China are a force to reckon with as,

though the global economy is still recovering after the recent economic shock it is said that

the economies of India and China were best able to withstand the jolt and were somewhat

prepared for the global recession as it hit them last. It was only in these two countries that the

rate of growth of the economy declined but it not go into negative figures. In both these countries

the export growth also declined but again the economies could sustain itself because of the

government stimulus packages and growth in domestic consumption.

China and India have managed a growth rate of 9.6 and 8.9 per cent respectively there by making

these two countries the top two growing nations of the world. China’s semi capitalist economy

has already surpassed the economies of France, Germany and Japan to become the second largest

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economy behind USA. India, with the present growth rate is already at the threshold of entry into

top ten economies of the world in terms of nominal GDP and top three in terms of purchasing

power parity.

REVIEW OF LITERATURE:

International Journal of Computing and Business Research ISSN (Online) : 2229-6166

India-China economic comparison:

China’s economy has been growing at an outstanding pace for years which has not escaped the

attention of global investors. Needless to say, the country’s stock market has gained 109 per cent

since 2009. India, on the other hand, has not yet forayed into the top ten countries of the world in

this context. The size of Chinese economy is 4.5 times more than that of Indian economy.

Further, India’s per-capita GDP is 1/7th of that of China at this juncture.

Why Has China’s Economy Taken Off Faster than India’s? June 2006 -David E. Bloom,

David Canning, Linlin Hu, Yuanli Liu, Ajay Mahal, and Winnie Yip1

This paper analyzes and compares the acceleration of economic growth in India and China.

There are three possible approaches to this task. The first is a simple shift share analysis, which

can be used to decompose the growth of income per worker into a portion attributable to the

reallocation of labor from low to high productivity sectors and a portion attributable to the

growth in labor productivity within sectors. The second approach is to calibrate a production

function, along the lines of Young (1994, 1995), and to apply the growth rate of factor inputs in

each country to estimates of the marginal productivity of each factor (based on microeconomic

data) to find their contribution to overall economic growth.

India and China – Global Economy

Since the late 1970s China has moved from a closed, centrally planned economic system to a

more market-oriented one that plays a major role in the global economy - in 2010 China became

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the world's largest exporter. India is developing into an open-market economy, yet traces of its

past autarkic policies remain. Economic liberalization, including industrial deregulation,

privatization of state-owned enterprises, and reduced controls on foreign trade and investment,

began in the early 1990s and has served to accelerate the country's growth, which has averaged

more than 7% per year since 1997.

OBJECTIVES OF RESEARCH:

1. To assess the present status of India and China in the global economy.

2. To know which of the two countries is enjoying an edge over the other on the various

fundamentals of the economy.

RESEARCH QUESTIONS:

1. Has the opening up of Chinese economy much before India’s played a huge role on its

upper hand over India?

2. Is manpower and labor development two factors that have created stark differences

between the economies?

STATEMENT OF PROBLEM

The present study is confined to two fastest growing economies of the world i.e China

and India. The comparison of these two economies has been made on key economic

variables only.

HYPOTHESIS

1. “Openness” of the economy plays a positive role in economic growth.

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2. Manpower, labor development and health care facilities are important factors that have

created stark differences between the two economies.

RESEARCH METHODOLOGY

In order to carry out an extensive Research, the Researcher has espoused the Doctrinal Method

of carrying out the Research. Doctrinal Research which provides a systematic exposition of the

rules governing a particular legal category, analyses the relationship between rules, explains

areas of difficulty and, perhaps, may even predict future developments. The researcher has tried

to include rules or provisions or statistics available and applicable in the present scenario. The

Researcher has used various sources of which Articles, websites, database are a major role to

play. The Researcher has also used various Articles and cases on the aforementioned issue.

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Chapter 1

Economy Overview

China Economy Overview:

Since the late 1970s China has moved from a closed, centrally planned economic system to a

more market-oriented one that plays a major role in the global economy - in 2010 China became

the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and

expanded to include the gradual liberalization of prices, fiscal decentralization, increased

autonomy for state enterprises, creation of a diversified banking system, development of stock

markets, rapid growth of the private sector, and opening to foreign trade and investment. China

generally has implemented reforms in a gradualist fashion. In recent years, China has renewed its

support for state-owned enterprises in sectors it considers important to "economic security,"

explicitly looking to foster globally competitive national champions. After keeping its currency

tightly linked to the US dollar for years, in July 2005 China revalued its currency by 2.1%

against the US dollar and moved to an exchange rate system that references a basket of

currencies1.

In the period 1978-1984, a reform in the agricultural sector introduced a new form of collective

firm and allowed distribution to households of the revenues deriving from production exceeding

the planned level. This reform favoured an increase in the production and productivity of the

primary sector. In the second period (1985- 88), the reforms mainly concerned the industrial

sector and consisted of prices and wages liberalisation, accompanied by the possibility of firms

keeping the profits for selffinancing. The increase in productivity and wages in this sector

attracted labour force underemployed in the agricultural sector, contributing to the overall

productivity growth. It was during this period that the “open door policy” started, thus

supporting the beginning of integration of China in the world economy through both trade and

FDI. Foreign firms were initially attracted by fiscal incentives in four “special economic areas”

and later by international trade and FDI liberalisations in 14 large cities and coastal regions. The

gradual openness and extension of strong incentives to FDI was, however, accompanied by

persisting rigid conditions for admitting FDI.12 In the third and fourth periods (1988-91 and

1992-97), reforms involved all economic sectors.13 The last period, before the 2009 world

1 International Journal of Computing and Business Research ISSN (Online) : 2229-6166

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recession and trade decline (1998-2008), was characterised by a growing openness of the

Chinese economy, especially after 2001 with admission to the WTO. It should be noted that a

crucial role in favouring the recent Chinese economic "miracle" is usually attributed to the

increasing degree of trade openness, especially regarding exports, while the liberalisation of

imports has been more gradual. In addition, huge FDI inflows, mainly attracted by much lower

labour costs, probably engendered spillover effects and contributed to transformation of the

production specialization model.

From mid 2005 to late 2008 cumulative appreciation of the Renminbi against the US dollar was

more than 20%, but the exchange rate remained virtually pegged to the dollar from the onset of

the global financial crisis until June 2010, when Beijing allowed resumption of a gradual

appreciation. The restructuring of the economy and resulting efficiency gains have contributed to

a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP)

basis that adjusts for price differences, China in 2010 stood as the second-largest economy in the

world after the US, having surpassed Japan. The dollar values of China's agricultural and

industrial output each exceeded those of the US; China was second to the US in the value of

services it produced. But per capita income is below the world average.

India Economy - overview:

India is developing into an open-market economy, yet traces of its past autarkic policies remain.

Economic liberalization, including industrial deregulation, privatization of state-owned

enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and

has served to accelerate the country's growth, which has averaged more than 7% per year since

1997.

India's diverse economy encompasses traditional village farming, modern agriculture,

handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than

half of the work force is in agriculture, but services are the major source of economic growth,

accounting for more than half of India's output, with only one-third of its labour force. India has

capitalized on its large educated English-speaking population to become a major exporter of

information technology services and software workers.

The Indian transition has also been "gradual", but quite different. First of all, the Indian

institutional change and the reform policies began later, contributing to a significant delay in

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integration of this country in the global economy with respect to China. Some reforms, for

example the partial liberalisation of imports (especially of intermediate and investment goods)

were introduced in the 80s14 and were followed by progressive privatisations, but it was only

after 1992 that the institutional change and the reform policies gradually accelerated, including

reforms of the fiscal system and the creation of “special economic zones”. Secondly, in addition

to persisting rigidities and weaknesses, the integration of India in the world economy is much

less intense than that of China.2

In 2010, the Indian economy rebounded robustly from the global financial crisis - in large part

because of strong domestic demand – and growth exceeded 8% year-on-year in real terms.

Merchandise exports, which account for about 15% of GDP, returned to pre-financial crisis

levels. An industrial expansion and high food prices, resulting from the combined effects of the

weak 2009 monsoon and inefficiencies in the government's food distribution system, fuelled

inflation which peaked at about 11% in the first half of 2010, but has gradually decreased to

single digits following a series of central bank interest rate hikes. In 2010 reduced subsidies in

fuel and fertilizers, sold a small percentage of its shares in some state-owned enterprises and

auctioned off rights to radio bandwidth for 3G telecommunications in part to lower the

government's deficit. The Indian Government seeks to reduce its deficit to 5.5% of GDP in FY

2010-11, down from 6.8% in the previous fiscal year. India's long term challenges include

widespread poverty, inadequate physical and social infrastructure, limited non-agricultural

employment opportunities, insufficient access to quality basic and higher education,and

accommodating rural-to-urban migration.

2 ibid

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Chapter-2

India-China Trade Relations

Among the most encouraging recent developments in India China Economy and India-China ties is the rapid increase in bilateral trade. China and India established diplomatic relations on April 1, 1950. India was the second country to establish diplomatic relations with China among the non-socialist countries.

In 1954, Chinese Premier Zhou Enlai and Indian Prime Minister Nehru exchanged visits and jointly initiated the famous Five Principles of Peaceful Coexistence. Relations soured because of two sudden invasions of China in India in the 1960s and it was only after a gap of 15 years, in 1976, that the two countries decided to restore ambassadoriallevel diplomatic ties .

The next major step was foreign minister Vajpayee's visit to China in February 1979 which laid the foundation for today’s trade relation. In 1984 India & China signed a Trade Agreement, providing for Most Favoured Nation Treatment. In 1994 the two countries signed the agreements on avoiding double taxation. Agreements for cooperation on health and medical science, MOUs on simplifying the procedure for visa application and on banking cooperation between the two countries have also been signed.

In December 1988, Indian Prime Minister, Rajiv Gandhi's visit to China, facilitated a warming trend in relations. The two sides issued a joint statement that stressed the need to restore friendly relations on the basis of the Panch Sheel and noted the importance of the first visit by an Indian prime minister to China since Nehru's 1954 visit.

India China Economy agreed to broaden bilateral ties in various areas, working to achieve a "fair and reasonable settlement while seeking a mutually acceptable solution" to the border dispute. Border trade resumed in July 1992 after a hiatus of more than thirty years, consulates reopened in Mumbai and Shanghai in December 1992. Top-level dialogue continued with the December 1991 visit of Chinese premier Li Peng to India and the May 1992 visit to China of Indian President Ramaswami Venkataraman and, in June 1993, the two sides agreed to open an additional border trading post. Rajiv Gandhi signed bilateral agreements on science and technology cooperation, on civil aviation to establish direct air links, and on cultural exchanges. The two sides also agreed to hold annual diplomatic consultations between foreign ministers, and to set up a joint ministerial committee on economic and scientific cooperation and a joint working group on the boundary issue. The latter group was to be led by the Indian foreign secretary and the Chinese vice minister of foreign affairs. As the mid-1990s approached, slow but steady improvement in relations with China was visible.3

3 • Basu, Kaushik. “Asian Century: a Comparative Analysis of Growth in China, India and other Asian Economies.” Working paper, eSocialSciences, 2010.

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Recently Chinese Premier Wen Jiabao visited India, where he said that India and China must take their trade to $30 billion level by 2010. Seeing the whopping growth in Sino-Indian trade, China outlined a five-point agenda, including reducing trade barriers and enhancing multilateral cooperation to boost bilateral trade.

Chinese Premier Wen Jiabao said "We have set an objective (in the joint statement) to increase the two-way trade volume from 13.6 billion doll r at present to 20 billion dollar by 2008.....we plan to take it to 30 billion dollar by 2010." Addressing Indian business leaders at New Delhi, he said that the two countries agreed for a joint feasibility study for a bilateral Free Trade Agreement.

India China Economy have also agreed to work together in energy security and at the multilateral level at the WTO to support an "open, fair, equitable and transparent rule-based multilateral trade system", the joint statement signed by Prime Minister Manmohan Singh and Wen said. Wen also offered to cooperate with New Delhi in its infrastructure programme.

Indian Commerce Minister Kamal Nath said China was poised to become India's largest trade partner in the next two-three years, next only to the US and Singapore.

According to a CII study, special focus on investments and trade in services and knowledge-based sectors, besides traditional manufacturing, must be given, in view of the dynamic comparative advantage of India.

Indian companies could enter the $615 billion Chinese domestic market by using it as a production base. Presently, Iron ore constitutes about 53% of India's total exports to China. Among the potential exports to China, marine products, oil seeds, salt, inorganic chemicals, plastic, rubber, optical and medical equipment and dairy products are the important ones. The study said that services and knowledge trade between India and China have significant potential for growth in areas like biotechnology, IT and ITES, health, education, tourism and financial sector.4

Value added items dominate Chinese exports to India, especiallymachinery, including electrical machinery, which together constitute about 36% of exports from that country. The top 15 Chinese exports to India have recorded growth between 29% (organic chemicals) and 219.89% (iron and steel)

Chapter-3

Comparison Between India and China

4 ibid

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Facts India China

GDP around $1.3123 around 4909.28

GDP Growth 8.90% 9.60%

Per Capital GDP $1124 $7,518

Inflation 7.48 % 5.1%

Labor Force 467 million 813.5 million

Unemployment 9.4 % 4.20 %

Fiscal Deficit 5.5% 21.5%

Foreign Direct Investment $12.40 $9.7 billion

Gold Reserves 15% 11%

Foreign Exchange $2.41 billion $2.65 trillion

World Prosperity Index 88th Position 58th Position

Mobile users 842 million 687.71 million

Internet users 123.16 million 81 million

China’s economy has been growing at an outstanding pace for years which has not escaped the

attention of global investors. Needless to say, the country’s stock market has gained 109 per cent

since 2009. India, on the other hand, has not yet forayed into the top ten countries of the world in

this context. The size of Chinese economy is 4.5 times more than that of Indian economy.

Further, India’s per-capita GDP is 1/7th of that of China at this juncture. China has done

miraculously well to reduce its poverty to the level of 8 per cent. Not long back, like India, it was

struggling on this front with a 30 plus per cent poverty. However, urgency in this regard has lead

to a situation that its poverty rate has come down to one digit. The country is optimistic to bring

the same to zero in near future.

India, on the other hand, inspite of all hype has failed to curtail its poverty rate and the same

stands at 37 per cent at this point of time. This obviously does not argue well for it. The

difference perhaps lies in the attitude and policies of the two countries. One of the major

indicators of poverty is rate of unemployment. On this front too, India has failed to match its

counterpart. An unemployment rate of 9.4 per cent in comparison to 4.6 per cent of China proves

India’s apathy on this front as well. There is no denying the fact that steps such as

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implementation of MNREGA may prove fruitful in reducing unemployment but to make any

significant improvement on this front, the country will have to adopt a more proactive approach.

China has outshined India on Foreign Direct Investment (FDI) front as well. Estimated annual

FDI inflow in China is $108 a year against $34.6 billion a year of India. More importantly, India

has failed to attract desired kind of FDI. China has been getting FDI in labour intensive

industries while India, on account of its poor policies has to content with capital intensive FDI.

Needless to say, FDI in China has generated huge employment and has surged its exports as

well. India, on the other hand has been made to wonder as to why inspite of attracting FDI,

unemployment and poverty rate are not coming down.5

Although foreign exchange reserves of India looks healthy at $2.41 billion, the same are

negligible in front of China’s $2.65 Trillion.

Inflation, especially food inflation has also rattled India in the recent past. The food inflation in

India, for instance is persisting at 15 % plus level for some time now. The Government, on its

part, is coming out rather funny arguments such as Indians consuming more or account of

enhanced prosperity to justify such a hefty price increase of food items. In reality, however,

ignorance of agricultural sector, cuts in subsidies and price hikes of inputs like diesel and

fertilisers, hoarding and growing penetration of big corporates in the food economy are the

reasons behind it. The comparative position of China is much better in this regard as well.

All this has culminated into rather sorry ranking of India on the various socio-economic health

indicators. India’s ranking in global exports is 20th. This is inspite of the fact that India is the

seventh largest country of the world and nature has showered all kind of blessings on it. China is

at the top on this front as well. On overall world prosperity index, the country’s 88th ranking

certainly creates lot of doubts about its future.6

It is however, heartening to note that India is not far behind China when it comes to the growth

rate these two countries are likely to achieve in the coming years and the way it has recovered

over recent recession. A projected growth rate of 9 percent (second fastest) and that too on

sustained basis for some years is likely to place India in the proximity of developed nations. This

argument also sounds authentic keeping in view the growth projections of the advanced

5 China and India: Openness, Trade and Effects on Economic Growth. The European Journal of Comparative Economics Vol. 8, n. 1, pp. 129-154 ISSN 1824-29796 Bosworth, Barry, and Susan Collins. “Accounting for Growth: Comparing China and India.” Working paper, International Finance and Macroeconomics, The National Beareau of Economic Research, 2007.

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countries. All these countries are likely to witness negative or very low economic growth rates in

the coming years. India’s recovery over recession also was swifter in comparison to most of the

other economies of the world.

The recent recession shattered the economies of many might countries. However, its impact on

India was marginal and short lived. Whatever negative impact was witnessed, that was

marginalized by a very swift and smooth recovery - the recovery, which has not been replicated

by even very strong economies of the world. Indian corporates, for instance, experienced some

erosion in both gross and net profit margins in third quarter.

If we make the analysis of the India vs. China economy, we can see that there are a number of

factors that has made China a better economy than India. Here it is very relevant to mention that,

India was under the colonial rule of the British for around 190 years. This drained the country's

resources to a great extent and led to huge economic loss. On the other hand, there was no such

instance of colonization in China. As such, from the very beginning, the country enjoyed a

planned economic model which made it stronger. The other major indicators which may be

compared are as follows:

Agriculture :

Agriculture is another factor of economic comparison of India and China. It forms a major

economic sector in both the countries. However, the agricultural sector of China is more

developed than that of India. Unlike India, where farmers still use the traditional and old

methods of cultivation, the agricultural techniques used in China are very much developed. This

leads to better quality and high yield of crops which can be exported.

IT/BPO:

One of the sectors where India enjoys an upper hand over China is the IT/BPO industry. India's

earnings from the BPO sector alone in 2010 is $49.7 billion while China earned $35.76 billion.

Seven Indian cites are ranked as the world's top ten BPO's while only one city from China

features on the list.

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Liberalization of the market :

In spite of being a Socialist country, China started towards the liberalization of its market

economy much before India. This strengthened the economy to a great extent. On the other hand,

India was a little slow in embracing globalization and open market economies. While India's

liberalization policies started in the 1990s, China welcomed foreign direct investment and private

investment in the mid 1980s. This made a significant change in its economy and the GDP

increased considerably.

Difference in infrastructure and other aspects of economic growth:

Compared to India, China has a much well developed infrastructure. Some of the important

factors that have created a stark difference between the economies of the two countries are

manpower and labor development, water management, health care facilities and services,

communication, civic amenities and so on. All these aspects are well developed in China which

has put a positive impact in its economy to make it one of the best in the world. Although India

has become much developed than before, it is still plagued by problems such as poverty,

unemployment, lack of civic amenities and so on. In fact unlike India, China is still investing in

huge amounts towards manpower development and strengthening of infrastructure.

Company Development:

Tax incentives are one area where China is lagging behind India. The Chinese capital market

lags behind the Indian capital market in terms of predictability and transparency. The Indian

capital or stock market is both transparent and predictable. India has Asia's oldest stock exchange

which is the BSE or the Bombay Stock Exchange. Whereas China is home to two stock

exchanges, namely the Shenzhen and Shanghai stock exchange.

As far as capitalization is concerned the Shanghai Stock Exchange is larger than the BSE since

the SSE has US$1.7 trillion with 849 listed companies and the BSE has US$1 trillion with 4,833

listed companies. But more than the size what makes both these stock exchanges different is that

the BSE is run on the principles of international guidelines and is more stable due to the quality

of the listed companies.

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In addition to this the Chinese government is the major stake holder of most of its State-owned

organizations hence the listed firms have to run according to the rules and regulations laid down

by the government. Hence India is ahead of China in matters of financial transparency.

Company Management Capabilities:

It is said that Indians have great managerial skills. India also leaves China behind as far as

management abilities are concerned. As compared to China India has better managed companies.

One of the major reasons for this is that management reform training in China began 30 years

ago and sadly the subject has still not picked up as a matter of interest by the

citizens of the country.

Another important factor behind China not doing well in the business forefront is that most of the

countries came to China and manufactured their goods. It was not China’s exports that drove the

economy instead it was the export products of outsiders. Even in the case of mergers and

acquisitions China still has not managed to do too well. On the other hand Indian companies are

rapidly expanding mergers and acquisitions. Some of the recent examples include; Tata Steel's

$13.6 Billion Acquisition of Corus, Tata Tea's purchase of a controlling stake in Britain's Tetley

for US$407 million, Indian Pharmaceutical giant Ranbaxy's acquisition of Romania's Terapia

etc.

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Chapter-4

Conclusion

It is an undisputed fact that both China and India are the largest market due to their huge

population. The rising middle income and upper income group is swelling. What's more, Chinese

and Indian consumers and companies now demand the latest technologies and features. Studies

show the attitudes and aspirations of today's young Chinese and Indians resemble those of

Americans a few decades ago. Surveys of thousands of young adults in both nations by

marketing firm Grey Global Group found they are overwhelmingly optimistic about the future,

believe success is in their hands, and view products as status symbols. In China, it's fashionable

for the upwardly mobile to switch high-end cell phones every three months, says Josh Li,

managing director of Grey's Beijing office, because an old model suggests "you are not getting

ahead and updated." That means these nations will be huge proving grounds for next-generation

multimedia gizmos, networking equipment, and wireless Web services, and will play a greater

role in setting global standards. In consumer electronics, "we will see China in a few years going

from being a follower to a leader in defining consumer-electronics trends," predicts Philips

Semiconductors Executive Vice-President Leon Husson.

The FDI of China is $ 65 billion in comparison to $3.5 billion that of India. This shows that

inspite of all the foreign investment policies of the Indian Government, they are unable to make

attractive for the FDI inflows.

The two countries are also becoming a new and reliable destination for research work not only

because Indian and Chinese brains are young, cheap, and plentiful. In many cases, these

engineers combine skills -- mastery of the latest software tools, a knack for complex

mathematical algorithms, and fluency in new multimedia technologies -- that often surpass those

of their American counterparts. As Cisco's Scheinman puts it: "We came to India for the costs,

we stayed for the quality, and we're now investing for the innovation."

But India's long-term potential may be even higher. Due to its one-child policy, China's working-

age population will peak at 1 billion in 2015 but then shrink steadily. India has nearly 500

million people under age 19 and higher fertility rates. By mid-century, India is expected to have

1.6 billion people -- and 220 million more workers than China. That could be a source for

instability, but a great advantage for growth if the government can provide education and

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opportunity for India's masses. India is now opening its power, telecom, commercial real estate

and retail sectors to foreigners. These industries could lure big capital inflows. India is

considered efficient in contrast to China, as it had to develop with scarcity. It gets scant foreign

investment, and has no room to waste fuel and materials like China. India also has Western legal

institutions, a modern stock market, a sophisticated manufacturing knowhow and private banks

and corporations. As a result, it is far more capital-efficient. A study on the top listed companies

in both nations shows Indian corporations have achieved higher returns on equity and invested

capital in the past five years in industries from autos to food products. Export manufacturing is

one of India's best hopes of generating millions of new jobs.

A few years ago, Indian markets were under the threat of being swamped by Chinese imports.

Today, India enjoys a positive balance of trade with China. Major industry players or

industrialist realised in India that giving the Chinese a free ride into the domestic market so early

would have hampered India’s domestic manufacturing base. The Indian have become more cost

and quality conscious. The Indian customer prefers Indian to Chinese products and our

manufacturing base is again gearing up.

The above research proves both my hypothesis right that is:-

1. “Openness” of the economy plays a positive role in economic growth.

2. Manpower, labor development and health care facilities are important factors that have

created stark differences between the two economies.

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References

India And China In The Global Economy- Comparative Evaluation. International Journal

of Computing and Business Research ISSN (Online) : 2229-6166 Volume 2 Issue 2 May

2011.

China and India: Openness, Trade and Effects on Economic Growth. The European

Journal of Comparative Economics Vol. 8, n. 1, pp. 129-154 ISSN 1824-2979

Economic Growth Patterns and Strategies in China and India: Past and Future. Louis

Kuijs, September 2012

Basu, Kaushik. “Asian Century: a Comparative Analysis of Growth in China, India and

other Asian Economies.” Working paper, eSocialSciences, 2010.

Bosworth, Barry, and Susan Collins. “Accounting for Growth: Comparing China and

India.” Working paper, International Finance and Macroeconomics, The National

Beareau of Economic Research, 2007.

Organisation for Economic Cooperation and Development. “Economic Survey India.”

Survey, Organisation for Economic Cooperation and Development, June 2011.

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