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MAHATMA EDUCATION SOCIETYS
PILLAI COLLEGE OF ARTS COMMERCE AND SCIENCENEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE
A PROJECT
ON
STUDY OF PROCESS COSTING
In the subject Economics of Development & Growth
SUBMITED TO
UNIVERSITY OF MUMBAI,
FOR SEMISTER-I OF
MASTER OF COMMERCE
BY
PRIYAL SHAH.
1917
UNDER THE GUIDENCE OF
PROF.AARTI SUKHEJA
YEAR-2012-2013
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MAHATMA EDUCATION SOCIETYS
PILLAI COLLEGE OF ARTS COMMERCE AND SCIENCENEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE
I, Miss. Priyal shah. student of M.Com Part-I Roll number 1917 hereby declare that the projectfor the Economic of Development & Growth titled,
Study of Economic Growth & Development
Submitted by Me for Semester-I During The academic year 2012-2013, is based on actual work
carried out by me under the supervision of Prof.Aarti Sukheja.
I further state that this work is original and not submitted anywhere else for any examination.
Signature of student
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MAHATMA EDUCATION SOCIETYS
PILLAI COLLEGE OF ARTS COMMERCE AND SCIENCENEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE
This is to certify that the undersigned have assessed and evaluated the project on
Study Of Economic Growth & Development(between India & China)
Submitted by Miss.Priyal Shah.Student of M. Com Part-I.
This project is original to the best of our knowledge and has been accepted forInternal Assessment.
Internal Examiner:- Principal:-
Prof. Aarti Sukheja Dr.Dephne Pillai
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MAHATMA EDUCATION SOCIETYS
PILLAI COLLEGE OF ARTS COMMERCE AND SCIENCENEW PANVEL
RE-ACCREDITED BY NAAC WITH A GRADE
The successful completion of project involved the contribution of time andefforts. This project would never have been completed without the valuable help
extended to us by the subject teacher and project guide Prof. Aarti Sukheja.
Secondly would like to thank our Principal Dr. Daphne Pillai and Vice
Principal Mr. A. N. Kutty for providing us such a prestigious institution.
Last but not least I would like to thank our Parents for making us capable in
doing this project and giving their continuous support and guidance.
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ECONOMIC DEVELOPMENT AND GROWTH
Introduction
In recent years, there has come into existence a new branch of economics Known
as the "Economics of Development". It refers to the problems of the economic
development of underdeveloped or backward countries. In addition to the
illuminating reports of the U.N.O. on the subject, some top ranking economists like
Nurkse, Dobb, Staley, Buchanan, Rostow and Ellis have made some original
contributions to the Economics of Development. The main reason for the growing
popularity of "Economics of Development" as a separate branch of economic
theory is the increasing tendency on the part of the newly independent countries of
Asia and Africa to resort to developmental planning as a means to eliminate their
age-old poverty and raise living standards.
Meaning of Economic Development
Economic development is a process whereby an economy's real national income
as well as per capita income increases over a long period of time. Here, the process
implies the impact of certain forces which operate over a long period and embody
changes in dynamic elements. It contains changes in resource supplies, in the rateof capital formation, in demographic composition, in technology, skills and
efficiency, in institutional and organisational set-up. It also implies respective
changes in the structure of demand for goods, in the level and pattern of income
distribution, in size and composition of population, in consumption habits and
living standards, and in the pattern of social relationships and religious dogmas,
ideas and institutions. In short, economic development is a process consisting of a
long chain of inter-related changes in fundamental factors of supply and in the
structure of demand, leading to a rise in the net national product of a country in thelong run.
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Definitions of Economic Development
The term 'economic development' is generally used in many othersynonymous
terms such as economic growth, economic welfare, secular change,social
justiceand economic progress. As such, it is not easy to give any precise and clear
definition of economic development. But in view of its scientific study and its
popularity, a working definition of the term seems to be quite essential.
Economic development, as it is now generally understood, includes
thedevelopment of agriculture, industry, trade, transport, means of irrigation,
power resources, etc. It, thus, indicates a process of development. The sectoral
improvement is the part of the process of development which refers to the
economic development. Broadly speaking, economic development has beendefined in different ways and as such it is difficult to locate any single definition
which may be regarded entirely satisfactory. Below given definition of UNEC
1. United Nations Expert Committee(UNEC)According to this Committee, "Development concerns not only
man'smaterial needs but also the improvement of the social condition of his
life.Development is, therefore, not only economic growth, but growth plus
changesocial, cultural and institutional as well as economic". This
definitionencompasses economic and non-economic aspects of development.Thisdefinition stresses on the expansion of development variables, and also
improvingthe quality of those variables. For example, capital is a
development variable.Not only the increased quantity of capital is needed
but the improvement in itsproductivity is also required for development.
Similar instances can be given inrespect of other development variables. The
central point of this definition isthat quantitative and qualitative changes in
development variables are consideredessential ingredients of economic
development.
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Characteristics of Developing Countries
1. Low life expectancy is measured against the average age that theindividual is expected to reach
2. Low standard of education- Education and training determine thestandard according to which the population of a country functions andproduces goods and services. One must remember that there are
approximately 80 million children in the poor South who do not go to
school at all, therefore one can understand why poor countries are faced
with unemployment. Without the necessary training people cannot be
prepared for a vocation. This means that such people have no chance of
improving their own conditions.
3. Poor health care-The percentage of a countrys budget that is allocated to health serviceslargely determines the standard of health care in that country. If we
consider the average percentage of 4% in developing countries as opposed
to the 96% in developed countries as shown on the graph on page 12, it is
easy to understand why the hospitals in many poor countries are in such a
shocking condition. There are simply not enough doctors and facilities for
the number of inhabitants of the countries.
4. Unemployment-Over-population and low literacy are some of the main causes of
unemployment. Everybody would like to have a job in order to make
money to earn a living. People who are unemployed cannot be self-
supporting and therefore they are unable to make any contribution to the
economy of the country.
5. Poor nutrition and limited access to safe water-Only 43% of the worlds food production comes from countries that
accommodate 80% of the global population. This, together with the low
life expectancy and inadequate education and training, as well as
insufficient industries, provides a recipe for malnutrition (a condition thatarises when people do not eat enough nourishing food). Approximately
30% of the children in the poor Countries do not have enough food to eat
every day.
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In developing countries many people are dependent on a stream or a river
for their daily supply of fresh water. The water from these sources is not
always safe and clean and if people use the water just as it is, it could lead
to outbreaks of diseases such as cholera, which cause many deaths every
year.
Threats to Developing Countries:
1.Significance of Industrial Sector-Most of the developed countries in the world have given much
importanceof the development of industrial sector. They have large capacities
to utilise resources of production, to maximise national income and to provide
employment for the jobless people. As we are quite aware that these
countriesreceive the major portion of their national income from the non-
agriculture sectors which include industry, trade, transport, and communication
For instance,England generally receives nearly 50% of her national income
from industrialsector, 21% from transport and commerce, 4% from agriculture
and 25% from other sectors. The same case is with the U.S.A., Japan and other
West European countries. But in India and other developing countries
agriculture contributes, say, 35 to 40 percent, to their national income.
2.High Rate of Capital FormationDeveloped countries are generally very rich, as they maintain a high
levelof savings and investment, with the result that they have huge amount of
capitalstocks. The rate of investment constitutes 20 to 25 percent of the total
nationalincome. The rate of capital formation in these countries is also very
high.Besides this, well-developed capital market, high level of savings,
broaderbusiness prospects and capable entrepreneurship have led to a high
growth ofcapital formation in these economies.
3.Use of High Production Techniques and SkillsHigh production techniques and skills have become an essential partofeconomic development process in the developed countries. The new
techniqueshave been used for the exploitation of the physical human resources.
Thesecountries have, therefore, been giving priority to the scientific research,
so asto improve and evolve the new and technique of production.
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Consequently,these countries find themselves able to produce goods and
services of a betterequality comparatively at the lesser cost. It is because of the
use of highproduction techniques and latest skills, that the countries like Japan,
Germanyand Israel could have developed their economies very rapidly, though
theyhave limited natural resources.
4.Low Growth of PopulationThe developed countries, like the U.S.A., the U.K. and other
WesternEuropean countries have low growth of population because they have
lowlevel of birth rate followed by low level of death rate. Good health
conditions,high degree of education and high level of consumption of the
people have ledto maintain low growth of population followed by low level of
birth and deathrates. The life expectancy in these countries is also very high.
The high rate ofcapital formation on the one hand and low growth of
population have resultedin high level of per capita income and prosperity inthese countries. Consequently,the people in these countries enjoy a higher
standard of living and work togetherunitedly for more rapid economic and
industrial development of the nations.Besides this, the entire society, its
structure and values are found to be Economic dedicated to the goal of rapid
economic and industrial development. The positionof individuals in the society
is decided by the ability of the persons and not bytheir birth, caste or creed.
Dignity of labour is maintained. The economic motiveand strong desire to lead
a better social life always inspire people to contributeto the process ofdevelopment. The main objective of rapid economicdevelopment, particularly
in the developed economies is to achieve the level ofstagnant economic
growth, so that they may maintain the existing economicstatus and exercise
control over business cycle.
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Economic Development and Economic Growth
Normally in economic textbooks, growth and development are used
synonymously, and this usage is widely acceptable. However, in particular, thetwo
terms have been distinguished by different economists as follows;
1. To some economists, economic development refers to the process
ofexpansion of backward economies, while economic growth relates to that of
advanced economies.
2. Schumpeter, however, uses the term "economic development" as
aspontaneous and discontinuous change in the stationary state which disturbs the
equilibrium state previously existing. And the term "economic growth" is used to
denote a steady and gradual change in the long run which comes through a generalincrease in the rate of saving and population in a dynamic Economy
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Factors Affecting Economic Growth
The process of economic growth is a highly complex phenomenon and I
influenced by numerous and varied factors such as political, social and
culturalfactors. As such economic analysis can provide only a partial explanation
ofthis process. To repeat here the remark of Prof. Ragnar Nurkse in thisconnection,
"Economic development has much to do with human endowments,social attitudes,
political conditions and historical accidents. Capital is a necessary but not a
sufficient condition of progress". The supply of natural resources, the growth of
scientific and technological knowledge-all these too have a strong bearing on the
process of economic growth. We shall briefly notice some of these factors one by
one.
A. Economic Factors
The following are the important factors which determine the economic
growth of an economy.
1. Natural Resources
The principal factor affecting the development of an economy is the natural
resources. Among the natural resources, we generally include the land area and the
quality of the soil, forest wealth, good river system, minerals and oil resources,good and bracing climate, etc. For economic growth, the existenceof natural
resources in abundance is essential. A country deficient in natural resources may
not be in a position to develop rapidly. In fact natural resourcesare a necessary
condition for economic growth but not a sufficient one. Japanand India are the two
contradictory examples. As pointed out by Lewis, "otherthings being equal man
can make better use of rich resources than they can ofpoor". In less developed
countries, natural resources are unutilized, underutilizedor misutilised. This is one
of the reasons of their backwardness. There is littlereason to expect naturalresource development if people are indifferent to the products or service which
such resources can contribute. This is due to economicbackwardness and lack of
technological factors.
According to Professor Lewis, A country which is considered to be poor in
resources may be considered very rich in resources some later time, not merely
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because unknown resourcesare discovered, but equally because new methods are
discovered for the knownresources". Japan is one such country which is deficient
in natural resources but it is one of the advanced countries of the world because it
has been able todiscover new use for limited resources.
2. Capital Formation
Among several economic factors, capital formation is another important
factor for development of an economy. Capital may be defined as the stock
ofphysical reproducible factors of production. Capital accumulation and
capitalformation, both of these terms carry the same meaning which may be
understoodsimply by the stock of capital. As we know, capital formation is
cumulative and self-feeding and includes three interrelated stages; a) the existence
of realsavings and rise in them; b) the existence of credit and financial institutions
tomobilise savings and to divert them in desired channels; and c) to usethesesavings for investment in capital goods.
3. Technological Progress
The technological changes are most essential in the process of economic
growth. Adam Smith, the father of political economy, pointed out the great
importance of technological progress in economic development. Ricardo visualised
the development of capitalist economies as a race between technological progress
and growth of population. The great importance of technological progress incapitalist development was recognised by Karl Marxtoo.
4. Human Resources
A good quality of population is very important in determining the rate of
economic progress. Instead of a large population a small but high quality of human
race in a country is better for development. Thus, for economic growth,investment
in human capital in the form of educational and medical and such other social
schemes is very much desirable.
5. Population Growth
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Labour supply comes from population growth. But the population growth
should be normal. A galloping rise in population retards economic progress.
Population growth is desirable only in a under-populated country. It is,
however,unwarranted in an overpopulated country like India. In fact, a high
populationgrowth at the rate of 2.5 percent per annum is very much detrimental to
the economic growth of our country.
6. Social Overheads
Another important determinant of economic growth is the provision of social
overheads like schools, colleges, technical institutions, medical colleges,hospitals
and public health facilities. Such facilities make the working populationhealthy,
efficient and responsible. Such people can well take their country economically
forward.
7. Organisation
In the process of growth, organisation is very important. It is organization
that emphasises maximum use of the means of production in production.
Orginisation is complementary to capital and labour and helps production to reach
the maximum level. In the modern economic system, the entrepreneur performs the
duty of an organiser and bears all risks and uncertainties. Hence,entrepreneurship
is an indispensable part in the process of economic growth.For instance, the
Industrial Revolution in England succeeded because of the entrepreneurship.
B. Non-Economic Factors
Both of the economic or noneconomic factors do play an important role in
the process of economic growth. In this regard, socio-economic, cultural,
psychological and political factors are also equally significant as are
economicfactors in economic development of the LDCs Cairncross rightly
observes :
"Development is not just a matter of having plenty of money, nor is it purely
an economic phenomenon. It embraces all aspects of social behaviour; the
establishment of law and order; scrupulousness in business dealings,
includingdealings with the revenue authorities; relationships between the family,
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literacy,familiarity with mechanical gadgets and so on". We discuss here some of
the essential noneconomic factors which determine the economic growth of an
economy.
1. Political Factors
Political stability and strong administration are essential and helpful
inmodern economic growth. It is because of political stability and
strongadministration that the countries like the U.K. the U.S.A., Germany,
Franceand Japan have reached the level of highest economic growth in the world.
But in most of the poor countries there is political instability and weak
administration which have largely influenced their economic development
programmes. It is, therefore, essential for their faster economic development to
have a strong, efficient and incorrupt administration. In conclusion, we cansay thata clean, just and strong administration can put an economy on the wayto rapid
economic development. Lewis rightly comments that "no country hasmade
progress without positive stimulus from intelligent governments".
2. Social and Psychological Factors
Modern economic growth process has been largely influenced by social and
psychological factors. Social factors include social attitudes, social valuesand
social institutions which change with the expansion of education and
transformation of culture from one society to the other. The Industrial
Revolutionof England and other Western European countries in the 18th century
was largely influenced by the spirit of adventure and the expansion of education
which led to new discoveries and inventions and consequently to the rise of thenew
entrepreneurs. Social attitudes, values and institutions changed. Joint familysystem
was replaced by the new single family system which further led to therapid
economic development in these countries.
3. Education
It is now fairly recognised that education is the main vehicle of
development. Greater progress has been achieved in those countries, where
education is wide spread. J.K. Garlbraith in his book "Economic Development"has
rightly stressed the role of education as an engine of economic growth.
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4. Urbanisation
Another noneconomic factor promoting development is the process
ofurbanisation. In poor agrarian economies, the structural change must begin with
the change in the size of population in rural and urban sectors.
5. Religious Factors
Religion plays a great role in economic growth. It may give rise to a peculiar
sense of self-satisfaction. For example, the Hindu religion encouragesfaith in fate
and prevents people from working hard. They are educated to remain satisfied with
their lot and to hate risk and enterprise. Then our religiongives a higher place to
spirit than matterObstacles to Economic Development
Broadly speaking, the features of an under developed economy create
obstacles in the way of economic development, and hamper economicprogress.These features emerge out of economic, social, political, religious and
institutionalfactors. It would be wrong to conclude that only economic factors are
responsiblefor poverty or economic backwardness of a country. Non-economic
factors are equally responsible for the under development of an economy. The
factorsdiscouraging economic development may be classified into economic and
noneconomic factors which are as under.
The important economic factors which obstacles to economic development
are:
Vicious Circles of Poverty
Most important feature of underdeveloped countries is their dependence on
vicious circles of poverty which may be considered as the highest bottleneckin the
process of their economic development. Poverty is not only distressing but it is
also demoralising. A poor man is one who is regarded as a disgrace tothe society
and a cause of humiliation to himself, and who is unable to have proper food and a
suitable house. Neither he helps himself, nor he is able to serve others. He is
burden on society. A poor man always finds himself havingbeen caught in a
vicious circle of poverty. Since he lacks the means to prosper,he remains
poor.What is true to an individual, is also true to the country as a whole.Since an
underdeveloped economy lacks the proper and modern means of economic
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development, its economic development becomes an uphill task. Since its rate of
investment and growth potential is so little, it has to remain poor.
We find circular relationships, known as the "vicious circles of poverty
which reveal the low level of economic development in Less Developed
Countries (LDCs). Prof. Nurkse defines the concept of "Vicious Circles ofPoverty" in these words: "It implies a circular constellation of forces tending toact
and react upon one another in such a way, as to keep a poor country in a state of
poverty.... A country is poor because it is poor."
The vicious circles operate in an underdeveloped economy on the supply as
well as on the demand side. On the supply side deficiency of capital and
lowvolume of savings, create vicious circles whereas low purchasing power
createsvicious circle on the demand side
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Difference between Economic Development and Economic Growth
in India and China:-
Introduction:-
India and China are the most growing and developing nations of Asia. Thesetwo countries are the most powerful country in coming future. There growth and
development are largely affected due to their highest number of population. But
theses country were managing and increases their world trade with many different
nations and emerging as a Most Developing Nations.
Difference between Economic Growth in India and China:
In the inevitable comparisons that economists and businesspeople make
between Asia's two rising giants, China and India, China nearly always comes out
on top.
The Chinese economy historically outpaces India's by just about every
measure. China's fast-acting government implements new policies with blinding
speed, making India's fractured political system appear sluggish and chaotic.
Beijing's shiny new airport and wide freeways are models of modern development,
contrasting sharply with the sagging infrastructure of New Delhi and Mumbai. And
as the global economy emerges from the Great Recession, India once again seemsto be playing second fiddle. Pundits around the world laud China's leadership for
its well-devised economic policies during the crisis, which were so effective in
restarting economic growth that they helped lift the entire Asian region out of the
downturn.
Now, however, India may finally have one up on its high-octane rival.
Though India still can't compete on top-line economic growth the World Bank
projects India's gross domestic product (GDP) will increase 6.4% in 2009, far short
of the 8.7% that China announced in mid-January India's economy looks to be
rebounding from the downturn in better shape than China's. India doesn't appear to
be facing the same degree of potential dangers and downside risks as China, which
means policymakers in New Delhi might have a much easier task in maintaining
the economy's momentum than their Chinese counterparts. "The way I see it is that
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the growth in India is much more sustainable" than the growth in China, says Jim
Walker, an economist at Hong Kongbased research firm Asianomics.
Indias edge is due to the different stimulus programs adopted by the two
countries to support growth during the downturn. China implemented what Walker
calls the biggest stimulus program in global history. On top of governmentoutlays for new infrastructure and tax breaks, Beijing most significantly counted
on massive credit growth to spur the economy. The amount of new loans made in
2009 nearly doubled from the year before to $1.4 trillion representing almost
30% of GDP. The stimulus plan worked wonders, holding up growth even as
Chinas exports dropped 16% in 2009.
But now China is facing the consequences of its largesse. Fears are rising
that Beijings easy-money policies have fueled a potential property-price bubble.
According to government data, average real estate prices in Chinese cities jumped
7.8% in December from a year earlier the fastest increase in 18 months. The
credit boom has also sparked worries about the nations banking system. Many
economists expect the large surge in credit to lead to a growing number of
nonperforming loans (NPLs). In a November report, UBS economist Wang Tao
calculates that if 20% of all new lending in 2009 and 10% of the amount in 2010
goes bad over the next three to five years, the total amount of NPLs from Chinas
stimulus program would reach $400 billion, or roughly 8% of GDP. Though Wang
notes that the total is small compared with the level of NPLs that Chinese banks
carried in the past, she still calls the sum staggering. Policymakers in Beijing are
clearly concerned. Since December, they have introduced a series of steps to cool
down the housing market and restrict access to credit by, for example,
reintroducing taxes on certain property transactions and raising the required level
of cash that banks have to keep on hand in an effort to reduce new lending.
India, meanwhile, isnt experiencing nearly the same degree of fallout from
its recession-fighting methods. The government used the same tools as every otherto support growth when the financial crisis hit cutting interest rates, offering tax
breaks and increasing fiscal spending but the scale was smaller than in China.
Goldman Sachs estimates that Indias government stimulus will total $36 billion
this fiscal year, or only 3% of GDP. By comparison, China s two-year, $585
billion package is roughly twice as large, at about 6% of GDP per year. Most
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important, India managed to achieve its substantial growth without putting its
banking sector at risk. In fact, Indias banks have remained quite conservative
through the downturn, especially compared with Chinese lenders. Growth of credit,
for example, was actually lower in 2009 than in 2008. As a result, economists see
continued strength in Indias banks. A January report by economic-research outfit
Centennial Asia Advisors noted that based on available data, there was no sign
that domestic banks nonperforming assets were deteriorating materially. Nor do
analysts harbor the same concerns that Indias monetary policies are sending prices
of Indian real estate to bubble levels. Indias growth, though less stellar, does
have the reassuring factor that the [risks of] asset price bubbles are less, says
Rajat Nag, managing director general of the Asian Development Bank in Manila.
India maintained robust growth without Beijings hefty stimulus in part
because it is less exposed to the international economy. China s exportsrepresented 35% of GDP compared with only 24% for India in 2008. Thus India
was afforded more protection from the worst effects of the financial crisis in the
West, while Chinas government needed to be much more active to replace lost
exports to the U.S. More significantly, though, Indias domestic economy provides
greater cushion from external shocks than Chinas. Private domestic consumption
accounts for 57% of GDP in India compared with only 35% in China. Indias
confident consumer didnt let the economy down. Passenger car sales in India in
December jumped 40% from a year earlier. What we see [in India] is a
fundamental domestic demand story that doesnt stall in the time of a global
downturn, says Asianomics Walker.
The Indian economy is not immune to risks. The government has to contend
with a yawning budget deficit, and last years weak monsoon rains will likely
undercut agricultural production and soften rural consumer spending. But rapid
growth is expected to continue. The World Bank forecasts Indias economy will
surge 7.6% in 2010 and 8% in 2011, not far behind the 9% rate it predicts for
China for each of those years. Indian Prime Minister Manmohan Singh, whenspeaking about his countrys more plodding pace of economic policymaking, has
said that slow and steady will win the race. The Great Recession appears to have
proved him right.
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Difference between Economic Development of India and China:-
On May 1, World Expo 2010 will open its doors in Shanghai, China. Thetheme of the exposition is "Better City - Better Life" and signifies Shanghai's newstatus in the 21st century as a major economic and cultural center. More than 190countries and more than 50 international organisations have registered toparticipate, and China expects to receive almost 100 foreign leaders and some 70million people - the largest number of visitors in the history of the world's fairs interms of gross numbers.
What could be a more fitting venue for this World Expo than China - thecountry expected shortly to overtake Japan's prized position as the second largestmarket in the world described by economist Jeffrey Sachs as the most successfuldevelopment story in world history. The size of the economy has doubled everyeight years for three decades - the fastest rate for a major economy in recorded
history. A recent report by PricewaterhouseCoopers forecasts that China couldovertake the US economy as early as 2020.
But China is not alone. India is also among the world's fastest growingeconomies and together with China, has contributed nearly 30% to globaleconomic growth as the balance of economic power continues to shift from Westto East. Contrary to popular belief, both China and India are not emergingeconomies, they are actually "re-emerging." China and India have particularstrengths and competitive advantages that have allowed each of them to weatherthe global financial crisis better than most countries and to gain ground in the
"catching-up game" with the developed world.
Beware the sleeping giant
India, often referred to as the "sleeping giant", has emerged as the fourthlargest market in the world when its GDP is measured on the scale of purchasingpower parity. Both economies are increasing their share of world GDP, attractinghigh levels of foreign investment, and are recovering faster from the global crisisthan developed countries. Each country has achieved this with distinctly differentapproaches - India with a "grow first, build later" approach versus a "top-down,
supply driven" strategy in China.
Although China's income per head is still low at about $3,566, less than one-tenth of what Americans have, it is more than three times higher that of Indians(just over $1,000). China is currently the fifth fastest-growing consumer economyin the world, and is on course to become the third-largest by 2020, with India closebehind and expected to move into the fifth position by 2025. Chinese consumers
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are indeed putting into practice Deng Xiaoping's famous quote, "It is glorious toget rich". The country recently surpassed the United States to become the world'slargest automobile market and has huge potential remains in terms of futurepurchasing power.
China is also the first country in the world to have met the poverty reduction
target set in the U.N. Millennium Development Goals, and enjoys the remarkablesuccess of having lifted more than 400 million people out of poverty. Thiscontrasts sharply with India, where 456 million people (42% of the population) stilllive below the poverty line, defined by the World Bank at $1.25 a day.
Different means, same end
The two countries' economic performance has been very differentlyorchestrated. China's growth has been mainly investment and export-driven,focusing on low-cost manufacturing, with domestic consumption as low as 36%
percent of GDP. On the other hand, India's growth has mostly been derived from astrong services sector and buoyant domestic consumption. India is also much lessdependent on trade than China, relying on external trade for about 20% of its GDPversus 56% for China.
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Conclusion
Chinese economy has grown at much faster rate than Indian, but India seems to becatching up. The average estimated productivity growth rate of China (5.9%) ismore than double that of India (2.4%). The dierence between same-deator average growth rates of India and China reducessignicantly (by as much as 70%) for manufacturing sector. Both import and exportare signicantly correlated of with trends in growth rate of output-per-worker andproductivity for India and China pointing towards presence of conventional Trade-Growth link. While increased growth of spending are accompanied by increase thegrowth rate of productivity in China, in India the correlation is negative. For India,service sector growth trend is more strongly correlated with government spendingand infrastructure.