Comparative Development Experiences of India and its Neighbours

(Indian Economic Development)

Notes

 

Formation of regional and economic groupings

(What are the various means by which countries are trying to strengthen their own domestic economies?)

 

1. Nations have been primarily trying to adopt various means which will strengthen their own domestic economies. Hence, they are forming regional and global economic groupings such as the SAARC, European Union, ASEAN, G-8, G-20, BRICS etc.
2. Nationa are eager to try and understand the developmental processes pursued by their neighbouring nations as it allows them to better comprehend their own strengths and weaknesses vis-à-vis their neighbours.
3. With globalisation, it is being considered essential by developing countries as they face competition not only from developed nations but also amongst themselves in the relatively limited economic space enjoyed by the developing world.
4. Besides, an understanding of the other economies in our neighbourhood is also required as all major common economic activities in the region impinge on overall human development in a shared environment.

 

Similarities in the developmental strategies of India, China and Pakistan

1. All the three nations have started towards their developmental path at the same time. While India and Pakistan became independent nations in 1947, People’s Republic of China was established in 1949. In a speech at that time,
2. All three countries had started planning their development strategies in similar ways. While India announced its first Five Year Plan in 1951, Pakistan announced its first five year plan, now called the Medium Term Development Plan, in 1956. China announced its First Five Year Plan in 1953.
3. India and Pakistan adopted similar strategies, such as creating a large public sector and raising public expenditure on social development.
4. Till the 1980s, all the three countries had similar growth rates and per capita incomes.
5. All the three countries introduced economic reforms. China in 1978, Pakistan in 1988 and India in 1991.

 

Note:

• India, Pakistan and China have similar physical endowments but totally different political systems.
  • India is the largest democracy of the world with a secular and deeply liberal Constitution for more than half a century,
  • Pakistan has militarist political power structure and
  • China, the command economy, has only recently started moving towards a democratic system and more liberal economic restructuring.
• All the three countries follow the similar planned pattern of development. However, the structures established to implement developmental policies are quite different.
• Since 2013, Pakistan is working on the basis of 11th Five Year Development Plan (2013–18), whereas, China is now working on 13th Five Year Plan (2016–20). Until March 2017, India has been following Five Year Plan- based development model.

 

China’s developmental path

1. After the establishment of People’s Republic of China in 1949, under one party rule, all critical sectors of the economy, enterprises and lands owned and operated by individuals were brought under government control.
2. The Great Leap Forward (GLF) campaign initiated in 1958 aimed at industrialising the country on a massive scale.
   1. People were encouraged to set up industries in their backyards.
   2. In rural areas, Commune system was started under which people collectively cultivated lands.
   3. In 1958, there were 26,000 communes covering almost all the farm population. d) Problems faced in GLF:
      • A severe drought caused havoc in China killing about 30 million people.
      • When Russia had conflicts with China, it withdrew its professionals who had earlier been sent to China to help in the industrialisation process.
3. In 1965, Mao introduced the Great Proletarian Cultural Revolution (1966–76) under which students and professionals were sent to work and learn from the countryside.
4. The present day fast industrial growth in China can be traced back to the reforms introduced in 1978. China introduced reforms in phases.
   1. In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors. In agriculture, for instance, commune lands were divided into small plots, which were allocated (for use not ownership) to individual households. They were allowed to keep all income from the land after paying stipulated taxes.
   2. In the later phase, reforms were initiated in the industrial sector. Private sector firms, in general, and township and village enterprises, i.e., those enterprises which were owned and operated by local collectives, in particular, were allowed to produce goods.
   3. Enterprises owned by government (known as State Owned Enterprises—SOEs), which we, in India, call public sector enterprises, were made to face competition.
   4. The reform process also involved dual pricing. This means fixing the prices in two ways; farmers and industrial units were required to buy and sell fixed quantities of inputs and outputs on the basis of prices fixed by the government and the rest were purchased and sold at market prices. e) In order to attract foreign investors, special economic zones (SEZ) were set up.

 

Pakistan’s developmental path

1. After gaining independence in 1947, Pakistan also followed the mixed economy model with coexistence of public and private sectors.
2. In the late 1950s and 1960s, Pakistan introduced a variety of regulated policy framework (for import substitution-based industrialisation). The policy combined tariff protection for manufacturing of consumer goods together with direct import controls on competing imports.
3. The introduction of Green Revolution led to mechanisation and increase in public investment in infrastructure in select areas, which finally led to a rise in the production of foodgrains.
4. In the 1970s, nationalisation of capital goods industries took place. Pakistan then shifted its policy orientation in the late 1970s and 1980s when the major thrust areas were denationalisation and encouragement of private sector.
5. During this period, Pakistan also received financial support from western nations and remittances from emigrants to the Middle-east. This helped the country in stimulating economic growth. The then government also offered incentives to the private sector. All this created a conducive climate for new investments.
6. In 1988, reforms were initiated in the country.

 

Demographic indicators

(Compare and contrast India, Pakistan and China with respect to some salient demographic indicators shown in the following table).

1. China is the most populous country (1393 million) among the three. The population of Pakistan (212 milllion) is very small and is about one-tenth of China or India (1352 million).
2. Though China is the largest nation and geographically occupies the largest area among the three nations, its density is the lowest (148 per sq. km) and India’s density is the highest (455 per sq. km), and Pakistan (275 per sq. km).
3. The population growth as being the highest in Pakistan (2.05), followed by India (1.03) and China (0.46). The one-child norm introduced in China in the late 1970s was the major reason for low population growth.

Effects of one-child norm

• One-child norm has resulted in a decline in the growth of population.
• But after a few decades, in China, there will be more elderly people (dependent population) in proportion to young people (working population). This will affect the labour force adversely. This led China to revoke the ‘One-child norm’ and allow couples to have two children.

1. The sex ratio (the proportion of females per 1000 males) is low and biased against females in all three countries due to son preference prevailing in all these countries. No of females per thousand males in Pakistan it is 943, in China it is 949 and in India it is 924.
2. The fertility rate is also low in China (1.7) and very high in Pakistan (3.6).
3. Urbanisation is high in China (59 percent) and very low in India having with only 34 per cent of its people living in urban areas and in Pakistan it is 37 percent.

 

Annual growth of Gross Domestic Product

(Compare and contrast India and China’s GDPand its growth rate in 1980-2017)

 

1. China has the second largest GDP (PPP) of $22.5 trillion in the world, whereas, India’s GDP (PPP) is $9.03 trillion and Pakistan’s GDP is $ 0.94 trillion, roughly about 11 per cent of India’s GDP. India’s GDP is about 41 per cent of China’s GDP. China was able to maintain near double-digit growth during 1980s (for one decade (ie. 1980-90).
2. In the 1980s, Pakistan was ahead of India (in terms of annual growth of GDP) at 6.3% and India was at the bottom 5.7%. China was having double-digit growth of 10.3%.
3. In 2015–17, there has been a decline in Pakistan and China’s growth rates (to 5.3% and 6.8% respectively), whereas, India met with moderate increase in growth rate (7.3%). The reform processes introduced in Pakistan and political instability over a long period are reasons behind the declining growth rate in Pakistan.

 

Why are there less number of people employed in agriculture in China?

• China and Pakistan have more proportion of urban population than India.
• In China, due to topographic and climatic conditions, the area suitable for cultivation is relatively small — only about 10 per cent is cultivable which is 40 per cent of India’s cultivable land.
• Until the 1980s, more than 80 per cent of the people in China were dependent on farming as their sole source of livelihood. Since then, the government encouraged people to leave their fields and pursue other activities such as handicrafts, commerce and transport.
• As a result, proportion of workforce engaged in agriculture reduced to 26% in 2018-19, with contribution to GDP at 7%.
• Moreover, there is greater urbanisation in China.

 

Sectoral share of employment and GDP in 2018-19

 

1. Until the 1980s, more than 80 per cent of the people in China were dependent on farming but in 2018– 19, with 26 per cent of its workforce engaged in agriculture, its contribution to the GVA in China is 7 per cent. In both India and Pakistan, the contribution of agriculture to GVA were 16 and 24 per cent, respectively, but the proportion of workforce that works in this sector is more in India. In Pakistan, about 41 per cent of People work in agriculture, whereas, in India, it is 43 per cent.

 

2. Twenty four per cent of Pakistan workforce is engaged in industry but it produces 19 per cent of GVA. In India, industry workforce account for 25 per cent but produces goods worth 30 per cent of GVA. In China, industries contribute to GVA at 41, and employ 28 per cent of workforce.

 

3. In all the three countries, service sector contributes highest share of GVA, more than 50%.

 

4. In the normal course of development, countries first shift their employment and output from agriculture to Industry and then to services. This is what is happened in China ie China has followed the classical development pattern of gradual shift from agriculture to manufacturing and then to services, India and Pakistan’s shift has been directly from agriculture to service sector.

 

5. The proportion of workforce engaged in industry in India and Pakistan were low at 25 per cent and 24 per cent respectively. The contribution of industries to GVA is at 30 per cent in India and 19 per cent in Pakistan. In these countries, the shift is taking place directly to the service sector. Thus, in all the three countries the service sector is emerging as a major player of development. It contributes more to GVA and, at the same time, emerges as a prospective employer.

 

6. If we look at the proportion of workforce in the1980s, Pakistan was faster in shifting its workforce to service sector than India and China. In the 1980s, India, China and Pakistan employed 17, 12 and 27 per cent of its workforce in the service sector respectively. In 2019, it has reached the level of 32, 46 and 35 per cent, respectively.

 

Trends in output growth in different sectors, 1980-2015

The above table shows that:-

 

In the last five decades, the growth of agriculture sector, which employs the largest proportion of workforce in India has almost remained stagnant wheras it has declined for both China and Pakistan.

 

2. In the industrial sector, China has maintained a near double-digit growth rate in 1980s but began showing decline in recent years whereas, for India and Pakistan growth rate has declined.

 

3. In case of service sector also, China was able to maintain its double-digit growth rate during 1980– 1990, but it showed a declining trend in 2014-18, while there was a positive and increasing growth of India’s service sector output.

 

4. Thus, China’s growth is contributed by the manufacturing and service sectors and India’s growth by the service sector. During this period, both China and Pakistan has shown deceleration in all three sectors.

 

5. During 2014-18, in all the three countries the share of service sector is highest among the three in the growth rate.

 

 

Human development indicators

(Compare and contrast the development of India, China and Pakistan with respect to some key human development indicators.)

Human development indicators are income indicators such as GDP per capita, or proportion of population below poverty line or health indicators such as mortality rates, access to sanitation, literacy, life expectancy or malnourishment.

 

The above table shows that:-

 1. China is moving ahead of India and Pakistan. This is true for many indicators — income indicator such as GDP per capita, or proportion of population below poverty line or health indicators such as mortality rates, access to sanitation, literacy, life expectancy or malnourishment. However these improvements were attributed not to the reform process but the strategies that China adopted in the prereform period.

 

2. Pakistan is ahead of India in reducing proportion of people below the poverty line and its performance in sanitation is same as for India. But both have high maternal mortality rate.

 

3. In China, for one lakh births, only 27 women die whereas in India and Pakistan, about 178 and 174 women die respectively.

 

4. All the three countries report providing improved drinking water sources for most of its population.

 

5. India has the largest share of poor (proportion of people below the international poverty rate of $ 3.20 a day), 60.4 and China has least, 7.0 among the three countries.

 

6. Infant mortality rate is the highest in Pakistan (57.2), followed by India (29.9) and the least in China (8.5) per 1000 live births.

 

7. In 2015, life expectancy at birth was the highest in China (76.7 years) followed by India (69.4 years) and then Pakistan (67.1 years).

 

8. Mean years of schooling (% aged 15 and above) is the highest in China (7.9) followed by India (6.5) and then Pakistan (5.2).

 

Hence, China is moving ahead of India and Pakistan but these do not include liberty indicators, without these, HDI are incomplete.

 

Liberty indicators

‘Liberty indicator’ is a measure of ‘the extent of democratic participation in social and political decisionmaking’. Some obvious ‘liberty indicators’ are

1. The extent of Constitutional protection given to rights of citizens.
2. The extent of constitutional protection of the Independence of the Judiciary and the Rule of Law.

 

Development strategies – An appraisal

(Why did China introduce structural reforms in 1978?)

1. China did not have any compulsion to introduce reforms as dictated by the World Bank and International Monetary Fund to India and Pakistan.
2. The new leadership at that time in China was not happy with the slow pace of growth and lack of modernisation in the Chinese economy under the Maoist rule.
3. They felt that Maoist vision of economic development based on decentralisation, self sufficiency and shunning of foreign technology, goods and capital had failed.
4. Despite extensive land reforms, collectivisation, the Great Leap Forward and other initiatives, the per capita grain output in 1978 was the same as it was in the mid-1950s.

 

Effects of reforms in China (post reforms)

1. It was found that establishment of infrastructure in the areas of education and health, land reforms, long existence of decentralised planning and existence of small enterprises had helped positively in improving the social and income indicators in the post reform period.
2. Before the introduction of reforms, there had already been massive extension of basic health services in rural areas. Through the commune system, there was more equitable distribution of food grains.
3. Since each reform measure was first implemented at a smaller level and then extended on a massive scale, it enabled the government to assess the economic, social and political costs of success or failure.
4. When reforms were made in agriculture by handing over plots of land to individuals for cultivation, it brought prosperity to a vast number of poor people. It created conditions for the subsequent phenomenal growth in rural industries and built up a strong support base for more reforms. This is how reform measures led to rapid growth in China.

 

Effects of reforms in Pakistan (post reforms)

 

1. In Pakistan the reform process led to worsening of all the economic indicators. As compared to 1980s, the growth rate of GDP and its sectoral constituents have fallen in the 1990s.
2. Though the data on international poverty line for Pakistan is quite healthy, however the official data of Pakistan indicate rising poverty there. The proportion of poor in 1960s was more than 40 per cent which declined to 25 per cent in 1980s and started rising again in the recent decades.(1990’s)

The reasons for the slowdown of growth and re-emergence of poverty in Pakistan’s economy, are that:

• • Agricultural growth and food supply situation were based not on an institutionalised process of technical change but on good harvest. When there was a good harvest, the economy was in good condition, when it was not, the economic indicators showed stagnation or negative trends.
  • In Pakistan most foreign exchange earnings came from remittances from Pakistani workers in the Middle-east and the exports of highly volatile agricultural products; there was also growing dependence on foreign loans on the one hand and increasing difficulty in paying back the loans on the other.
  • However, during the last few years, Pakistan has recovered its economic growth and has been sustaining. In 2017-18, the Annual Plan 2019-20 reports that, the GDP registered a growth of 5.5 per cent, highest when compared to the previous decade. While agriculture recorded growth rate far from satisfactory level, industrial and service sectors grew at 4.9 and 6.2 per cent respectively. Many macroeconomic indicators also began to show stable and positive trends.

 

Conclusion

India, China and Pakistan have travelled about seven decades of developmental path with varied results.

• Till the late 1970s, all of them were maintaining the same level of low development.

 

• The last three decades have taken these countries to different levels.

 

• India, with democratic institutions, performed moderately, but a majority of its people still depend on agriculture. Infrastructure is lacking in many parts of the country. It is yet to raise the level of living of more than one-fourth of its population that lives below the poverty line.

 

• The political instability, over-dependence on remittances and foreign aid along with volatile performance of agriculture sector are the reasons for the slowdown of the Pakistan economy. Yet, last three years, many macroeconomic indicators began showing positive and higher growth rates reflecting the economic recovery.

 

• In China, the lack of political freedom and its implications for human rights are major concerns; yet, in the last four decades, it used the ‘market system without losing political commitment’ and succeeded in raising the level of growth alongwith alleviation of poverty and betterment of other human indicators.

 

• Unlike India and Pakistan, which are attempting to privatise their public sector enterprises, China has used the market mechanism to ‘create additional social and economic opportunities’.

 

• By retaining collective ownership of land and allowing individuals to cultivate lands, China has ensured social security in rural areas.

 

 

• Public intervention in providing social infrastructure even prior to reforms has brought about positive results in human development indicators in China.