India has made significant strides in economic growth and the development of markets for businesses in the last two decades. So has China. India’s growth and market potential have been compared to China’s breathtaking development over the last three decades. The scope, size and the rates of growth of both these economies have inspired the keen interest of scholars, practitioners and public policy makers.
There is little doubt that today China is significantly ahead of India in all the defined economic and market metrics. China’s economic annual average growth rate has been about 10 percent over the last 20 years, compared to India’s average annual growth rate of about 6-7 percent during the same time period. During the period, 1990-2000, the foreign direct investment in China was about $200 billion and the comparative number for India was about $10 billion (Yallapragada and Paruchuri 2001). China’s infant mortality rate – a measure of society’s welfare -- is about 27 per 1000 live births, and India’s rate is about 61. Poverty is lower in China. Per World Bank estimates, about 100 million Chinese live below poverty line but in India this estimate is about 350 million. China’s economy is estimated to be over $2 trillion but India’s economy is just barely $1 trillion. China enjoys a strong political structure and that is considered to be an asset compared to India’s sometimes loud and energetic democracy.
However, there are empirical facts and strategic elements that appear to suggest that while China may offer immediate certainty to business investment, India may offer greater potential for medium-term to long-term investments. For example, the per capita incomes in India and China were about $317 and $461 in 1990 but in 2006 those numbers were surprisingly $634 and $635 respectively. In 16 years, India made remarkable strides contrary to the general belief that China ran away with the growth in the 1990s.
So there are two important empirical questions: How do the growth models and market potential of China and India compare? What are some policy lessons to be learned?
This paper addresses some aspects related to these two important research questions, and thus builds on the base of knowledge. The paper is organized as follows. First, we discuss the economic growth models of China and India and specifically, the role of foreign direct investment (FDI), poverty alleviation programs and pluralism, and entrepreneurship and structure of the economy in the growth models adopted by the two countries. Then we discuss the arguments relating to physical infrastructure, social investments, governance institutions, and level of export-import trade. Finally, we conclude with an exploratory empirical analysis.
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