There are good reasons for China’s ability to pull so far ahead of India
When asked what animals symbolise China and India, most people would probably say the dragon and the elephant. In terms of long-term economic prospects, however, the hare and the tortoise may well turn out to be the more appropriate choice. While India is moving more slowly than China at this point, there is a real possibility that over the next decades, we may see it catching up and, ultimately, pulling ahead.
With the exception of some patriotic Indians, most people will find this point surprising, if not far-fetched. Certainly, on its past and present form and record, China has been winning the contest hands down. Adjusted for differences in purchasing power, China’s total GDP in 2008 -- the latest year for which confirmed World Bank statistics are available -- was more than twice that of India. If we standardise by population, India narrows the gap somewhat, but China’s per capita GDP is still about twice that of India -- approximately US$6,000. This is even more remarkable given that China’s per capita GDP in 1978, the year Chinese economic reforms began, was just slightly more than half that of India. Absolute poverty rates in China, which used to be one-third higher than in India in 1981, are now half those of India. And despite Indian economic reforms from 1991, the economic output gap has been growing further: between 2004 and 2008, China’s economy grew at an average annual rate of 10.8 per cent, compared with 8.7 per cent for India’s economy.[This article is republished courtesy of INSEAD Knowledge, the portal to the latest business insights and views of The Business School of the World. Copyright INSEAD 2024]