The comparison of two very different countries was never easy. And a comparison of two huge countries that are so different isn’t any easier. Today we are taking a look at two of the top 10 largest world economies: India and China. We will compare them in various categories and summarize the pros and cons of each of these countries from a business point of view. Let’s check this information and data out.
If we look at the statistics displayed in Indian media and newspapers we will find the information about GDP growth rate in India and how it overtook the same growth rate in China. But if we look closer to the data we will find out that this outcome is generated by the great effort of Indian media’s to show their country in the best way possible. It is true that India made a massive leap on the path to become an economic giant, but china has been doing it for long time now.
In this article we will compare economical facts about these two countries and present them to you in easy to understand points.
2. Economy size differences
Let’s begin with the one of the most visible differences, yet the most important one: economy size. There are of course various factors that cause impact on the economy size of any country, and these factors are also different among them. Also economy size isn’t constant – it can change in a matter of days.
In the second half of the previous century the situation in comparison between these two countries was totally different than now. Nominal GDP of both countries in 1987 was almost at the same level. As for today China has overcame Indias nominal GDP by 4.78 times. If we look at the PPP basis the GDP of China is nearly 2.5 times greater than India. To have a full view of how different these countries has developed we can take a look at the moment of crossing the $1 trillion mark: China did it in 1998, when India did it 9 years later, in 2007.
China has grown much faster than India, and do so it’s economy. If we look at the GDP per capita of both countries we can see that both countries have been neck-to-neck at some point. In 1990 India was even richer than China. But nowadays, 19 years later it is China who is richer almost 4.61 times in nominal method and 2.30 times in PPP method.
Looking at their GDP per capita rank we can see that China is 72nd and India is 145th in nominal, and 75th vs 126th respectably in PPP.
To understand why there are so much differences in so short period of time we have to take a look on how these countries had grown. China grew by more than 10% in 22 years while India never grown more since 1961. This perfectly depicts the reason of differences in size of economy between them now: lack of development in India.
2.1 GDP composition
Both countries have more or less similar GDP composition according to CIA Factbook. China GDP is mostly based on Services (52.2%) and Industry (39.5%), while only 8.3% of its entire GDP is Agriculture. In India the composition base is the same, but with different percentages: Services – 61.5%, Industry – 23% and Agriculture – 15.4%.
2.2 India vs China: GDP growth difference
The last thing we need to take a look at to have a full picture of difference between China and India in terms of economy is the growth difference. At this moment GDP of China is close to $7 trillion, when GDP of India is close to $1.5 trillion. This means that the economy of China is at least 4 times bigger than India. And even if China grows at 1.5% and India at 7%, the Chinese economy would have added the same amount of income as the Indian economy would have, so it will always be a few steps ahead.
2.3 India vs China – Economy size differences – conclusion
Comparison of growth rate between China and India clearly show us that India barely have any chance to overtake Chinese economy. In the clash among these two it is China who win all the competitions for at least last three decades. If India want to get ahead of its competitor it needs to find a way to multiple their growth rate, but to be honest, it seems to be almost impossible anytime soon.
3. India vs China – Workforce difference
To this point of the article it was China who clearly won the main comparison here. But India have its strategic advantages too. The most important one is the workforce. Based on the well known and praised British system – Indian educational system give Indians a huge advantage in the form of i.e. foreign language (English) which helps them a lot in work. Because of this fact the Indian workforce is global in nature, when their Chinese counterparts may face language barriers. The Indian workforce is also known for their high-end jobs in IT industry and BPO industry, very different in comparison to China, where most workforce is created by the factory workers.
Because world is still moving forward in technology we will need more high skilled knowledge workers in the future and less manual workers, which may give us a rise in prominence of the Indian workforce.
4. China vs India – manufacturing productivity
Conclusion of this factor is obvious – the winner is China. Why? Some base statistics: average Chinese worker produces 1.6 time more output than the average Indian worker. This means that the productivity of China as a nation is 60% higher than India. And it is not anything surprising if we take into account the better quality infrastructure and better production techniques in China.
On the other hand India have some issues in the manufacturing sector like, slow and expensive transport, lack of skill and knowledge that increase productivity of this sector and poor electricity supply systems. Because of these issues it seems that India will not come close to the manufacturing productivity level of China in the near future.
5. China vs India – Inflation
Unfortunately for India – its GDP growth came along with inflation. And it is well known fact that this connection cannot last long, because it will lead to the catastrophe.
Of course, China faces inflation too, and for many years now, but it is relatively stable at a negligible 0.8%. How they do not have hyperinflation with their growth rate now? Because of wise investments in foreign assets with sovereign wealth funds, which allow China to keep the inflation rate low. Because of these facts it seems that India will be unable to compete with China here anytime soon.
6. Strict policies
India is facing a demographic dividend. It has a huge, extremely skilled workforce. Hence, if the government is able to provide jobs to these workers, the Indian economy is expected to grow by leaps and bounds. Given the fact that there will be a lot more people in the workforce than out of it, India is poised to become an economic superpower.
Also, China faces what many economists call a demographic time bomb. For the past couple of decades, China has followed the one-child policy to control the population. However, now China faces a situation wherein there are more people out of the workforce than in it. On average, every Chinese worker is expected to pay for the costs of at least two Chinese retirees.
7. India vs China – Summary
The outcome of this comparison is clear: the China is miles ahead from India. But both have their strong and weak points. China is still communist country at some point where all the enterprises are run by the state. As the history has shown this model of running enterprises are definitely not efficient and not innovative. This is another advantage of India where the industry is based on the innovative companies.
If we take a closer look at the world economy it is clear that because of its competitive nature the innovation is the key. China may be ahead of china now but who knows, if the Chinese enterprise model will not change, this might be a huge chance for innovative Indian companies in the knowledge-intensive industries.
We hope that you enjoyed reading our comparison. Thank you for visiting our website, attention and time, and see you in the next posts!
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