Sunday, July 01, 2007

Comparing China and India

Growth at 9 per cent for the next 13 years would still only get us a real GDP that China will have surpassed by 2007

With 9.4 per cent GDP growth in 2006-07 on the heels of 9 per cent of the previous year, some in India have begun to believe that we are poised to give China a run for its money. It may be a tactically good move to herald the arrival of India, and to tell global investors that it is time to actively pursue the India option.

It also true that in sectors such as IT, IT-enabled services and those that need strong engineering and systems inputs, India scores higher than China. And there is hard evidence that, despite many disadvantages, Indian companies perform far better than most of their Chinese counterparts — be it in profit margins, return on capital, or shareholder returns.

However, to claim that India can now play catch-up with China is a huge exaggeration.

To understand how far behind we are in economic terms and, thus, how much more we need to focus on reforms and governance, here is some evidence.

The life expectancy at birth of an average Chinese is 71 years; for an Indian, it is 64 years. In China, infant mortality is 31 out of 1,000 live births; in India, it is 85 per 1,000.

For people of 15 years and more, the average literacy rate in China is 91 per cent; in India, it is 61 per cent. For those in the 15-24 years bracket, China’s literacy rate is 98 per cent, versus India’s 76 per cent.

Let’s now move on to GDP. Without adjusting for purchasing power parity, China’s GDP (at both constant prices and exchange rates) is $2,600 billion — three times that of India’s at around $850 billion. China’s per capita GDP is almost 2.7 times that of India’s.

With an output of 423 million metric tonnes (MT), China’s steel production is 10 times that of India’s. The Middle Kingdom produced 1.24 billion MT of cement last year; India’s output was 168 million MT. India did very well to manufacture 1.5 million passenger cars in 2006-07; China produced 5.2 million in 2006.

What about infrastructure? In 2006, China produced 2,830 billion kilowatt hours (kWh) of power and, for the first time, was power surplus. In contrast, India produced 664 billion kWh with a 14.5 per cent peak power deficit. China already has around 45,000 km of barriered, restricted access, multi-lane dual carriageways. Let’s forget barriers and restricted access, as on 31 May 2007, we had 6,989 km of four or six-lane dual carriage national highways.

Telecom is an Indian success story. In 2006-07, we had 166 million mobile subscribers. By March 2007, the number of mobile subscribers in China was 463 million.China’s exports are eight times that of India’s; and imports four times greater. In 2006, China’s total value of exports and imports was $1,761 billion (or 69 per cent of its GDP). India’s was not even a fifth at $307 billion, or 37 per cent of GDP.

Foreign direct investment (FDI) in China during 2006 added up to $63 billion. India had a landmark year, with FDI at around $9 billion.

While beyond a point, it does not amount to much, the fact is that China’s foreign exchange reserves are now at $1,200 billion (that’s $1.2 trillion), while India’s is $208 billion.

Unless our political class decide to commit collective hara kiri, I have no doubts that India will continue growing at an average of around 8 per cent to 8.25 per cent over the next decade. Indeed, with a greater focus on infrastructure, we can even raise the decadal compound annual growth rate to a bit over 9 per cent. You know where that 9 per cent growth will take us? To a real GDP of around $2,950 billion in 2020 — a level that China will have comfortably surpassed in 2007.

In other words, 13 years of focused, unrelenting slog can get us to today’s China. That’s great. But China won’t be waiting for us to get there. So let’s get real. And realise that reforms have only just begun.

P.S. Are the Congress socialists and the CPI(M) listening?
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