be project_india china usa

8/2/2019 BE Project_India China USA

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A Business Environment Project

Date:November 2nd

, 2011

BBS Finance 3F-B

Rahul (8125)

Ishan Luthra (8135)

Cyril Thomas (8136)Achint Singh Gulati (8165)

COMPARISON OF ECONOMIES OF INDIA | CHINA | USA


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BUSINESS ENVIRONMENT TERM PAPER | 2011 | 1 | P a g e

TABLE OF CONTENT

Topics Page No

Acknowledgement 2

Introduction 3

Economy of India (Brief Overview) 4

Objectives 5

Indian Economy History 6

Indian Economy Present Scenario 11

India & China 16

India & USA 21

A Multipolar C-I-A World 30

Conclusion 39


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ACKNOWLEDGEMENT

We would like to express our heartiest gratitude to our Business Environment

Professor, Dr. Amar N. Gupta. Without his constant, untiring & unfailing

support and guidance, we would not have been able to complete this project.

We wish to acknowledge all the authors and experts whom we extensively

referred to, as without their researches and analysis, this project would not have

come to fruition.


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INTRODUCTION

Economic Growth & development are two different terms used in economics.

Generally speaking, economic development refers to the problems of

underdeveloped countries and economic growth to those of developed countries.

The term economic development is far more comprehensive. It implies

progressive changes in the socio-economic structure of a country. Viewed in

this way economic development Involves a steady decline in agricultural shares

in GNP and continuous increase in shares of industries, trade banking

construction and services. Further whereas economic growth merely refers to

rise in output; development implies change in technological and institutional

organization of production as well as in distributive pattern of income.

In the words of Prof. Amartya Sen "Development requires the removal of major

sources of unfreedom poverty as well as tyranny, poor economic opportunities

as well as systematic social deprivation neglect of public facilities as well as

intolerance or over activity of repressive states."


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ECONOMY OF INDIA (BRIEF OVERVIEW):

India is developing into an open-market economy, yet traces of its past autarkic

policies remain. Economic liberalization, including reduced controls on foreign

trade and investment, began in the early 1990s and has served to accelerate thecountry's growth, which has averaged more than 7% per year since 1997.

India's diverse economy encompasses traditional village farming, modern

agriculture, handicrafts, a wide range of modern industries, and a multitude of

services. Slightly more than half of the work force is in agriculture, but services

are the major source of economic growth, accounting for more than half of

India's output, with only one-third of its labor force. India has capitalized on its

large educated English-speaking population to become a major exporter of

information technology services and software workers.

An industrial slowdown early in 2008, followed by the global financial crisis,

led annual GDP growth to slow to 6.5% in 2009, still the second highest growth

in the world among major economies. India escaped the brunt of the global

financial crisis because of cautious banking policies and a relatively low

dependence on exports for growth. Domestic demand, driven by purchases of

consumer durables and automobiles, has re-emerged as a key driver of growth,

as exports have fallen since the global crisis started.

India's fiscal deficit increased substantially in 2008 due to fuel and fertilizer

subsidies, a debt waiver program for farmers, a job guarantee program for rural

workers, and stimulus expenditures. The government abandoned its deficit

target and allowed the deficit to reach 6.8% of GDP in FY10. Nevertheless, as

shares of GDP, both government spending and taxation are among the lowest in

the world.

The government has expressed a commitment to fiscal stimulus in FY10, and todeficit reduction the following two years. It has increased the pace of

privatization of government-owned companies, partly to offset the deficit.

India's long term challenges include widespread poverty, inadequate physical

and social infrastructure, limited employment opportunities, and insufficient

access to basic and higher education. Over the long-term, a growing population

and changing demographics will only exacerbate social, economic, and

environmental problems.


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OBJECTIVE OF THE STUDY:

This comparative study is aimed at determining the position of India in the scale

of economic development and to analyze the current status of India compared to

other countries.


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INDIAN ECONOMY HISTORY

The 12th largest economy in the world in terms of the market exchange rate, the

Indian economy has come a long way to become one of the fastest growing

economies. In order to have an idea of the various economic stages, one needsto make an analysis of the Indian economy history.

The pre colonial era of Indian economy

India is one of the world's oldest civilizations. The main source of economy and

income for the people in the ancient ages was agriculture. The fertile plains,

rivers and water bodies and a favorable climate provided a wonderful scope for

agricultural produce in the country. The ancient civilizations of India like Indus

Valley, the Aryan civilization, Mauryan Empire, Gupta Empire and most otherdynasties had a planned economic system. In some dynasties, even coins were

issued. However, the chief form of trading in those times was the barter system.

According to the economic rule, the farmers and villagers were required to

provide a part of their crops or produce to the kings or the landlords.

Even in the Muslim rule, the economy of India was mainly based on agricultural

produce. Towards the later part of the Mughal period, some trade relations were

established between the Mughal Empire and the British, French and Portuguesemerchants. Eventually, after the Battle of Plassey, the British East India

Company eventually came into power. Thus the colonial rule in India started.

The colonial era of India is a significant part of the India Economy history. It

brought a considerable change in the process of taxation from the revenue taxes

to the property taxes which resulted in large scale economic breakdown. In fact

a number of industries like the Indian handicrafts industry suffered huge losses.

During India's freedom struggle, the Indian Nationalists advocated for theSwadeshi Movement in which the British products were boycotted.

However, the British rule also developed the country to a great extent. The

financial and banking system as well as free trade was established, a single

currency system with exchange rates was brought into being, standardization of

weights and measures took place and also a capital market came into existence.

Stress was also given to the development of infrastructure and new telegraph

lines were laid, railway lines were constructed and roads were made.


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Post Independence to the 1990s

After India gained independence, stress was given to stabilize the economic

system of the country. Wide scale development was made in sectors such asagriculture, village industries, mining, defence and so on. New roads were built,

dams and bridges were constructed, and electricity was spread to the rural areas

to improve the standard of living.

In the subsequent Five Year Plans, a number of economic reforms and policies

were formulated. Public and rural sectors were developed, emphasis was given

to increase the quantity and quality of the export items, making the country self

sufficient and minimize imports and other related reforms. The political leaders

also put stress on business regulations, central planning and nationalization of

the industries in mining, electricity and infrastructure.

Another major economic reform that was initiated in the 1960s was to make

India self sufficient in food grain production. In this regard, the Green

Revolution' movement was initiated for aforestation, more irrigational projects,

improved seed usage, better farming techniques and use of fertilizers and lots

more.

In the 1980s, the first step towards market liberalization was undertaken by the

then government headed by Rajiv Gandhi. In his tenure, restrictions on a

number of sectors were eased, pricing regulations were abolished and efforts

were made to improve the GDP of the country.

From 1990s to the present times

India's economic condition in the initial stage of the 1990s was dismal. The

main trading partner, Soviet Union ,was dissolved and India faced huge balance

of payment problems. The loans kept on increasing and the IMF asked for a

bailout loan. In this situation, Manmohan Singh, the then Finance Minister

initiated the liberalization plan. This is one of the milestones in the history of

Indian Economy. In the liberalization plan, foreign direct investments (FDI)

were welcomed, public monopolies were abolished and banking, service and

tertiary sectors were developed. Boost was also given to develop the money and

capital market.


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Since the open market plan in the 1990s, India has experienced favorable

economic growth. Today it has become one of the fastest growing economies in

the world with a GDP growth rate of around 6-7 %. To complement the

growing GDP, the country has also experienced growth in per capita income,

standard of living and industrial development.

How the Indian economy changed in 1991-2011Manmohan Singh is not a renowned orator. He delivers his public speeches in a

monotonous undertone that one associates with college lecturers and bankers -

and India's prime minister has been both. But one of Singh's speeches, made

exactly twenty years ago, will go down in the annals of Indian history as the onethat changed India.

In his maiden budget speech as the finance minister of India, Singh presented

the finances of a country that was nearly bankrupt and slayed the licence raj,thereby changing the lives of not just India's 84 crore citizens then but those of

another 36 crore citizens who have been born since.


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How much has India changed since then? Since 1991, India's GDP has

quadrupled, its forex reserves have surged from $5.8 billion to $279 billion, and

exports from $18 billion to $178 billion.

But these are just numbers. The change in our lives and lifestyles is a lot more

fascinating. Back in 1991, owning a Maruti 800 (Rs 1.48 lakh in Delhi) was a

middle- class status symbol.

Scooters like Bajaj Chetak and Lambretta accounted for more than half of the

two-wheelers sold in the country. A bottle of soft drink, be it desi versions like

Gold Spot or Thums Up, cost just Rs 4.50.


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Challenges before Indian economy

Population explosion: This monster is eating up into the success ofIndia. According to 2001 census of India, population of India in 2001 was

1,028,610,328, growing at a rate of 2.11% approx. Such a vast populationputs lots of stress on economic infrastructure of the nation. Thus India has

to control its burgeoning population.

Poverty: As per records of National Planning Commission, 36% of theIndian population was living Below Poverty Line in 1993-94. Though

this figure has decreased in recent times but some major steps are needed

to be taken to eliminate poverty from India.

Unemployment: The increasing population is pressing hard on economicresources as well as job opportunities. Indian government has started

various schemes such as Jawahar RozgarYojna, and Self Employment

Scheme for Educated Unemployed Youth (SEEUY). But these are

proving to be a drop in an ocean.

Rural urban divide: It is said that India lies in villages, even today whenthere is lots of talk going about migration to cities, 70% of the Indian

population still lives in villages. There is a very stark difference in pace

of rural and urban growth. Unless there isn't a balanced development

Indian economy cannot grow.

These challenges can be overcome by the sustained and planned economicreforms.

These include

Maintaining fiscal discipline Orientation of public expenditure towards sectors in which India is faring

badly such as health and education. Introduction of reforms in labour laws to generate more employment

opportunities for the growing population of India. Reorganization of agricultural sector, introduction of new technology,

reducing agriculture's dependence on monsoon by developing means ofirrigation.

Introduction of financial reforms including privatization of some publicsector banks.


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Indian Economy Present Scenario

India is one of worlds fastest growing economies. Apart from China, no other

country has as high an economic growth rate as India. This country offers

several economic advantages to its nationals as well as foreign investors. Indiaseconomic boom has been made possible mainly through its information

technology and outsourcing business. Indias rise as an Asian economic

powerhouse has been quite remarkable. Economic conditions in India are now

favourable for a wider cross section of people.

While the situation of inflation is quite common for the developing economies

and most of the people are well versed with problem of inflation and know its

implications in general, the situation of deflation is rare. In developing

countries, deflation has entirely different connotations than those of the

inflation. In the common parlance deflation is an economic situation of falling

prices, but in economic theory there is much more to it than just the reducing

price level.

In economic terms, deflation can be termed as a situation of declining prices,

often caused by a reduction in the supply of money or credit. It can also be

caused by the direct contraction in expenditure, including the public

expenditure, personal spending or the investment expenditure. This is oppositeof inflation and often leads to lower effective demand and increasing

unemployment rate in the economy.

According to economic theory, price level is the result of functional relationship

between demand and supply. To put it simply, the supply being constant, if the

demand of the goods and services increases in an economy, the prices are likely

to go up and the economy is likely to encounter a situation of inflation. On the

other hand, if the supply increases with demand being constant, or the supply

increases more than the demand, the prices may fall and such a situation may be

referred to as deflation.

In addition to the above demand supply dynamics, the inflation or deflation can

also be caused by the reasons of the adequacy or lack of money supply in the

country. If the money supply is less, it is a situation of more money chasing

lesser goods and services, leading to general rise in prices. On the other hand, if

the money supply is more than the supply of goods and services, the situation of

fall in prices is generally experienced and is referred to as deflation.


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Deflation caused by rapid growth of production and manufacturing in the

country, causing the supply to go up is good for the economy, as with abundant

availability of all goods and services in the economy, the prices go down,

resulting in increase in the real income and wealth of all the consumers. Such a

situation does not harm the producers also, as they gain by increasing sales

volumes.

The Great Depression of 1930s was associated with deflation and it is said that

the recession coupled with deflation leads the economies to suffer. It is this very

concern which is causing anxiety among the economists and the policy makers.

But it must be clearly understood that deflation and depression are two different

words and situations and should not be taken as synonymous.

Effects on the Economy

Temporary fall in prices is not deflation and it is the sustained fall for a

considerably long period of time which is a matter of serious concern. It causes

the aggregate demand to fall, as due to the falling prices the consumers try to

delay the purchases, which in turn reduces economic activity in the economy,

thereby accentuating the spiral effect of deflation. The result is that the existing

manufacturing capacity of the economy becomes idle, leading to furtherreduction in aggregate demand and even more reduction in economic activity. If

the process continues without any interventions from the government, the

economies may move in to a situation of recession.

Theoretically speaking, the situation of deflation may also lead to a peculiar

economic condition known as the liquidity trap. Generally, the rate of interest

in an economy is linked to the rate of inflation. But the situation of deflation

may necessitate the interest rates to go down as low as zero. Deflationary times

and zero interest rates reduce the economic viability of most of the projects due

to tremendously reduced demand and the investors also tend to postpone their

new projects.

This worsens the situation further. Generally, the deflationary situation

encourages people to hold on to their money, mainly because of the reasons like

lower aggregate demand for newly produced goods and very low interest rates

that discourage the people from keeping money in bank deposits. This causes

substantial reduction in the velocity of money i.e. reduction in the number oftransactions, dramatically reducing the money supply in the economy, as one


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mans expenditure is the income of another. Reduced velocity of money results

in reduction of incomes.

Deflation results in fall of availability of hard currency per person. This further

results in increasing the purchasing power of each unit of currency, as theaverage price level goes down. Increase in purchasing power may sound

beneficial to a layman but actually it may cause hardship to those people whose

majority of wealth is kept in non-liquid assets such as real estate, land and

buildings.

It is thus evident that sustained deflation is a serious cause of worry to the

policy makers, as it may lead the economies to recession and, more seriously, to

a situation of depression.

Indian Fears

In India, the rate of inflation or deflation is measured on the basis of Wholesale

Price Index (WPI) on weekly basis and then computed for the fiscal years for

the purpose of policy monitoring, appraisal and decisions. WPI is an indicative

and representative index of the wholesale prices of various commodities

produced in the economy. Consumer Price Index (CPI), on the other hand, is an

index of the consumer prices that give 46 per cent weightage to the food items,

15 per cent weightage to the domestic facilities, 6.4 per cent to lighting and fuel

and 6.6 per cent to apparel and shoes.

The inflation rate in India has suddenly fallen to a level of less than half a per

cent and closer to zero in March 2009 onwards and the fears of the Indian

economy slipping into a precarious situation of deflation have been expressed

by many. But despite extremely lower inflation rate, the prices of food items are

still experiencing reasonably higher increase in prices. This, while putting theeconomically vulnerable sections of society in a disadvantageous position, has

also given a glimmer of hope to the policy makers because this phenomenon

may gradually stabilize the economy and help it come out of the deflationary

pressures early.

The economists are in a fix and do not know whether to call this economic

situation in the country as deflation or disinflation. While the deflation is

persistent fall in price level, disinflation is a situation where the inflation rate

goes down. The economic theory provides separate sets of solutions for both the


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situations and unless the situation is clearly identified and diagnosed, it would

be difficult to resolve it.

Government agencies in India vehemently deny that there is any fear of

deflation in the near future. The International Monetary Fund has projected theannual inflation rate of 1.7 per cent for the Indian economy for 2009-10. This

implies that for some part of the year, the economy may experience a

brief spell of deflation. Whether or not to call such a situation a deflationary

situation, is a matter of argument.

As per Mr P.K. Padhy, Economic Advisor in the Ministry of Commerce and

Industry, the current economic situation is that of disinflation in India. The basis

for such a belief is that the economy has grown at the rate of 5.3 per cent in the

third quarter of the previous fiscal. Economists like Suresh Tendulkar and

Pranab Sen also argue on the same lines. In one of its reports on the Indian

economy, the Citigroup has said that the deflationary patch in India is due to

high base effect and supply side issues and is likely to be temporary and short-

lived in nature. But persistence of such a situation may increase the problems of

the economy in the months to follow.

Many economists believe that the current situation can be termed as demand

deflation. Both production and the prices are falling down. This would requiremore targeted fiscal measures, along with stepped up direct government

purchases and increased scope of public distribution system.

The situation in India may not be as grave as that of sustained deflation. The

CPI is still positive and at around 10 per cent; the rural demand for FMCGs is

robust and food items are in great demand. The resilience of our economy may

not allow the typical deflationary situation to emerge and the current phase may

turn out to transient and temporary. Despite the above, the situation needs to betackled by the Government very carefully.


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Some economic facts about IndiaIndia GDP (purchasing power parity) stood at around $2965 billion, as per

CIAs 2007 estimates, of which services accounted for maximum percentage,

followed by industry and agriculture. As per CIA estimates, total Indian exports

totalled $140.8 billion and total imports totalled about $224 billion.

India inflationInflation in India rose to more than 11 percent in July 2008. But due to

government measures and role played Reserve Bank of India, inflation was

brought down to about 6 percent. Earlier in 2007, average inflation was around

5.3 percent.

Foreign direct investmentWith economic liberalization of India in 1990s, this nation began to generate a

lot of interest among foreign investors. A rapidly developing economy coupled

with national governments favourable attitude towards foreign investors, have

generated a lot of revenue for India vis--vis foreign direct investments.

Foreign direct investment dataIn 2007-08, foreign direct investment in India touched $25 billion. In previous

time period, this figure was around $15.7 billion. As of May 21, 2008 Indias

foreign exchange exceeded $341 billion. Ministry of Commerce and Industry

projections indicate that India is slated to attract more then $35 billion as

foreign direct investment. Ernst and Young had carried out a survey in June

2008, which identified India as fourth most attractive investment destination of

world. All this augurs well for economic condition of India.


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India & ChinaComparison of two Asian Giants

In the Indian cricket team, both Sehwag and Gambhir are prolific opening

batsmen. But, when Sehwag is on the song, Gambhirs performance is almost

over-shadowed by his partners fast-paced innings.

But, both the players gel-up very well while running between the wickets and

mutual understanding. They set the tone of the Indian innings by showing

controlled aggression between themselves and a building a firm base for the

Team India.

However, Gambhir immediately joins the party once he settles down and gets

the measure of the wicket. Furthermore, this provides opportunity to Sehwag to

calm down post power-play session and pace his innings for a longer haul.

This is how Indo-China relationship is currently stacked up. China led the way

(like Sehwag) with its decade of scorching growth rate; over-shadowing Indias

slow and steady growth prospects (like Gambhir).

However, just when the Chinese economy was getting over-heated, the

Peoples Bank of China slammed the brakes on its scoring rate; thus, passing on

the baton of illuminating the world economy to India by taking over the

drivers seat.

In a nutshell, both China and India have to gel-up to emerge as two giants that

will firmly buttress the worlds economy in the coming century by preparing

themselves for a second wave of growth in aftermath of the global financial

crisis, says a report on China-India Comparison An examination of 2011

Direction and Developments.

Key Findings of the Comparison Report between India and ChinaIndia catching up with Chinese economy

India is currently in the phase of growth as explained by Gambhirs position

above. The country has just started to come in lime-light and its growth patterns

have mirrored that of Chinas at an average of about 8% annually until the

financial crisis hit. Indias economy currently is in 12th position, and is likely to

break into global top 10 in terms of size. By 2030, India will have overtaken

China both in terms of population and GDP growth rates.


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The Indo-China bilateral trade has grown significantly since 2005, except for

the crisis-hit year 2009. Chinese imports of Indian goods fell 26.6% more than

Indian imports of Chinese goods. The inequality of trade has led to tension as

Indian manufacturers have to surpass the rout of low-cost Chinese goods.

Tax Structures

Both India and China have done fairly well when it comes to tax structures and

other central and regional levies within the country. Moreover, India is on the

cusp of landmark tax reform, especially in indirect taxes through introduction of

GST.
http://trak.in/wp-content/uploads/2011/04/image2.pnghttp://trak.in/wp-content/uploads/2011/04/image1.pnghttp://trak.in/wp-content/uploads/2011/04/image2.pnghttp://trak.in/wp-content/uploads/2011/04/image1.png


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While China did away with preferential tax incentives largely available to

foreign investors in free trade zones, with unification of tax base in 2008; India

has shored-up tax incentives in special economic zones to gives its

infrastructure sector a much-needed boost.

The Manufacturing Hub

Morgan Stanley had reported that Chinas rapidly aging population, followed by

its one-child policy, is set to dramatically shrink its workforce and effectively

pass the baton to India as the worlds manufacturing hub. Moreover, China is

becoming a consumer market to sell to, rather than a global manufacturing hub.

Also, the World Banks prediction that Chinas GDP growth will fall to 7.7% in

2015 and by 6.7% by 2020, highlights the cause of concerns that could

slowdown the dragons growth. Morgan Stanley expects Indias growth tosurpass Chinas growth two years from now.

The Government Intervention

While a vast majority of Chinas growth comes from state-owned companies,

Indias economic miracle can be largely attributed to its private sector story.

Having said this, even Indias state-owned companies are gradually logging

change from its conventional business model hit by red-tapism.
http://trak.in/wp-content/uploads/2011/04/image3.png


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Chinas state-owned and subsidized model has led to unfair competition and

frequent government interventions paving way for difference in decision

making and executive talent within the two countries.

The City to reckon with

The stage is set where India-China comparisons are inevitable in any form of

demographic analysis. The report finds that though Shanghai is referred as

Chinas financial center, it seriously lags Mumbai in terms of financial maturity,

profitability, and ability to deliver dividends to shareholders.

The Business Environment

In China, the business hubs are already established and running with efficient

administration in place. However, India isnt up to China standards yet when it

comes to development and execution of large-scale projects including

infrastructure solutions.

But, on the other hand, even China is facing certain headwinds such as increase

in labor unrest and strikes due to protectionist policies. The same also applies to

social media and internet interventions administered by the Chinese

government. Even the levels of corruption is different in both the places with

that at China being more of disguised as favors and connections; rather than in

the form of baksheesh that is prevalent in India.


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When the business people and economists make the inevitable comparison of

India vs China economy, the two rising giants of Asia, it is always China that

holds the top position. The economy of China has always outpaced the economy

of India in almost every measure. The Chinese government is very prompt at

making and implementing new effective policies whereas the government of

India always lags behind. The Indian political system always appears to be

chaotic and sluggish in this regard.

A contrast in the airports of Beijing along with Delhi and Mumbai would give

you the practical visuals of the infrastructure of these two countries. Wide

freeways and shiny new airport in Beijing have set the modern development

models. On the contrary, the sagging infrastructure of Mumbai and New Delhi

shows a sharp contrast. With the emerging global economy after the recession,India comes second to China. According to the trade reporters, the leadership

quality and well-planned economic strategy of China during the crisis period

have helped the entire Asian region to lift up from the economic downturn.

If you are interested to know China economy facts, you must go back to check

its history in the 18th century when its economy was the largest in the entire

world. At that time, 25% of global output came from China. However, it came

to be known as the the poor man of Asia in the first half of the 20th Century.

In 1949, Chinas population was quarter of the worlds population and hence, it

could produce only 5% of global output. With agricultural technology which

was developed about 1000 years ago, China helped about half a billion people

in the year 1850.

About 89% of the population of China lived in the countryside in the year 1949

and the agricultural product accounted for 60% of the economy output in total.

The economy of China had the tendency to double its size every eight years

since 1978. The GDP of China grew 9.6% every year between 1978 and 2005.

China has seen explosion in the international trade between 2000 and 2007 with

growth of imports about 425% and increase in exports almost 490%. The

comparison between India vs China economy 2011 has proved that China is

far ahead of India. India would really have to work hard on its policies and

strategies to reach or attain what China has achieved. The huge growth of

Chinas economy helped its people to come out of poverty.


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India & USA, A Brief Comparison

Interestingly, these two different economies are following divergent monetary

policies trying to solve their economic riddlesone is aiming to control high

levels of inflation and the other is trying to move accelerate from stall speed(it currently stands on the precipice of economic recession) and an unacceptably

high level of unemployment. The former is India; the latter is the U.S.

While the Reserve Bank of India (RBI) has been tightening the monetary screws

(12 rate hikes in the past 18 months) more than ever before, the U.S. Fed is

following ultra-expansionary monetary policy. However, success has been

steadfastly eluding both. So, what gives?

Even at the cost of sounding clichd, I am tempted to invoke a much abusedphrase: this time its different. Past sins are clearly catching up now,

rendering the monetary policy actions ineffective, when ordinarily they could

have had an impact. To add to the woes, external factors are conspiring against

success.

First lets focus on India, where the average inflation since January 2010 is

9.6%.

Figure 1: Inflation and Monetary Policy
http://www.economonitor.com/analysts/files/2011/09/KunalFig1.jpg


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Source: Office of Economic Advisor (GoI), RBI

The very fact that such a long tightening phase has failed to affect prices to the

extent desired clearly indicates that inflation in India is mainly structural innature (not cyclical). Years of neglect suffered by the agriculture sector are

evident from the excessively low level of investment in the sector (Figure 2).

Figure 2: Gross Capital Formation (GCF)

Note: QE = quick estimate

Source: Economic survey, GoI

For a sector that supports about 65% of Indias population, there is a high price

to be paid for such neglect. Not surprisingly, agriculture productivity levels in

India are among the lowest in the world, as is evident from the yields shown in

Figure 3.

Figure 3: Comparison of Yields (hectogram per hectare)

Source: FAO
http://www.economonitor.com/analysts/files/2011/09/KunalFig3.jpghttp://www.economonitor.com/analysts/files/2011/09/KunalFig2.jpghttp://www.economonitor.com/analysts/files/2011/09/KunalFig3.jpghttp://www.economonitor.com/analysts/files/2011/09/KunalFig2.jpg


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Hugely inadequate physical infrastructure in agriculture (be it irrigation, cold

storage facility, transportation, etc.) not only leads to low levels of productivity,

but also to a huge loss of foodgrain due to improper storage. In India, more

than 10% of foodgrain production gets wasted every year. As per the report of

the 11th Planning Commission, preventable post-harvest losses of foodgrains

are estimated at about 20 million tonnes a year, which is nearly 10.5% of the

total production. To put things in perspective, India wastes close to 50% of

Australias annual foodgrain production. Even a bumper crop is a problem for

India and the country has had to resort to exporting foodgrains this year to tide

over the storage problem, while every day millions of Indians go to bed hungry.

Not surprisingly, food inflation has remained persistently high in India, which

has started to feed into overall inflation (Figure 4).

Figure 4: WPI/Food Inflation (%, y/y)

Source: Office of Economic Advisor

Moreover, as I have said inprevious posts, inflationary pressures are also

coming from the trade channel, as a result of the persistently high prices of oil

and other commodities. The problem has been further compounded by the

recent depreciation of the rupee (Figure 5), mainly on account of a perceptible

retreat of FX flows due to the decreasing appetite for emerging market risk

assets, as the European sovereign debt crisis continues to boil.
http://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/http://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/http://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/http://www.economonitor.com/analysts/files/2011/09/KunalFig4.jpghttp://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/


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Figure 5: USD/INR

Source: Bloomberg

This is leading to imports becoming even costlier (negating the effect of some

of the recent softening in commodity prices), further adding to inflationary

pressures and thereby rendering the RBIs monetary policy efforts futile. All

this, despite clear evidence of demand destruction in India.

At the other end of the monetary policy spectrum lies the U.S. Fed.


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Figure 6: Fed Funds Rate

Source: Fed

As the global crisis erupted, the Fed acted quickly and eased money policy as

fast as it could (Figure 6). However, with the Fed Funds rate at as close to zero

as possible (and having been so for a longish period of time), the Fed has no

more policy bullets, except for continuing to keep rates low, which is what it is

doing. Here again, an extended period of ultra-low interest rates has not

ratcheted up the economy.

With house prices yet to bottom out and unemployment levels remaining

stubbornly high, the excessively leveraged U.S. consumer seems to bethoroughly down and out. The Conference Board Consumer Confidence Index

stagnated at a two-year low in September (Figure 7), indicating that consumers

are deeply worried about the state of the economy, and hence about their

income and employment situations.


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Figure 7: Conference Board Consumer Confidence Index

Source: Bloomberg

With consumers retreating and the crisis of confidence becoming all pervasive,

the low interest rate regime has simply failed to spur the economy. The policylimitation that close-to-zero interest rates entailed forced the Fed to go for QE.

Unfortunately, even this did not help much. Credit growth did not perk up

materially and all that QE resulted in was rising excess reserves (rather than

further lending), as credit-worthy borrowers refrained from borrowing and

lending institutions also preferred to hold tight (Figure 8), given the crisis of

confidence and the fear of tighter regulations.


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Figure 8: Bank Credit (%, SAAR)

Source: St. Louis Fed

With corporate profits moving to record-high levels, most companies, especially

the nonfinancial ones, have preferred to use their cash to deleverage. The same

has gone for credit-worthy consumers. Even the tax breaks and transfers have

been, to a great extent, used to reduce debt. They have helped to arrest the slide

in consumer spending, but have not stimulated an increase. Even the vast sum

of money used for the cash for clunkers scheme or the second home buying

scheme helped the economy to perk up only in the short term and the positive

multiplier effect soon faded away. Of course, it did not help that Europe was

hurtling faster and deeper into trouble.

The fact also remains that both the RBI and the Fed have not necessarily alwaystaken the right decisions (though these been debated enough in the public

domain and are beyond the scope of this article). Moreover, the politicians of

both countries have played an important role in spoiling the partyin the U.S.

through one-upmanship, and in India through sheer inertia (policy paralysis for

some). This reminds me of what Charles Dickens wrote in A Tale of Two

Cities (it was the age of wisdom, it was the age of foolishness), though in a

slightly altered form: When the world needed wisdom, foolishness was more

readily on display)


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Indian Economy statsAmerican

Economy stats

Business efficiency 59.053 100

Ranked 33rd. Ranked 1st. 69% more than India

Economic freedom 1.5 3.2

Ranked 123rd. Ranked 7th. 113% more than India

Economic importance 2.1 197.9

Ranked 25th. Ranked 1st. 93 times more than

India

GDP $4,164,000,000,000.00 $13,060,000,000,000.00

Ranked 5th in 2006. Ranked 2nd in 2006. 2 times

more than India

GDP growth > annual % 9.23 annual % 3.2 annual %

Ranked 14th in 2005. 188%

more than United States

Ranked 119th in 2005.

GDP (per capita) $3,751.99 per capita $43,680.67 per capita

Ranked 121st in 2006. Ranked 3rd in 2006. 11 times

more than India

GDP per capita in 1820 $531.00 $1,287.00

Ranked 24th. Ranked 5th. 142% more than India

GDP per capita in 1900 $625.00 $4,096.00

Ranked 38th. Ranked 3rd. 6 times more than

India

GDP per capita in 1950 $597.00 $9,573.00


India

GDP per capita in 1973 $853.00 $16,607.00
http://www.nationmaster.com/country/in-india/eco-economyhttp://www.nationmaster.com/country/in-india/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/graph/eco_bus_eff-economy-business-efficiencyhttp://www.nationmaster.com/graph/eco_eco_fre-economy-economic-freedomhttp://www.nationmaster.com/graph/eco_eco_imp-economy-economic-importancehttp://www.nationmaster.com/graph/eco_gdp-economy-gdphttp://www.nationmaster.com/graph/eco_gdp_gro_ann-economy-gdp-growth-annualhttp://www.nationmaster.com/graph/eco_gdp_percap-economy-gdp-per-capitahttp://www.nationmaster.com/graph/eco_gdp_per_cap_in_182-economy-gdp-per-capita-1820http://www.nationmaster.com/graph/eco_gdp_per_cap_in_190-economy-gdp-per-capita-1900http://www.nationmaster.com/graph/eco_gdp_per_cap_in_195-economy-gdp-per-capita-1950http://www.nationmaster.com/graph/eco_gdp_per_cap_in_197-economy-gdp-per-capita-1973http://www.nationmaster.com/graph/eco_gdp_per_cap_in_197-economy-gdp-per-capita-1973http://www.nationmaster.com/graph/eco_gdp_per_cap_in_195-economy-gdp-per-capita-1950http://www.nationmaster.com/graph/eco_gdp_per_cap_in_190-economy-gdp-per-capita-1900http://www.nationmaster.com/graph/eco_gdp_per_cap_in_182-economy-gdp-per-capita-1820http://www.nationmaster.com/graph/eco_gdp_percap-economy-gdp-per-capitahttp://www.nationmaster.com/graph/eco_gdp_gro_ann-economy-gdp-growth-annualhttp://www.nationmaster.com/graph/eco_gdp-economy-gdphttp://www.nationmaster.com/graph/eco_eco_imp-economy-economic-importancehttp://www.nationmaster.com/graph/eco_eco_fre-economy-economic-freedomhttp://www.nationmaster.com/graph/eco_bus_eff-economy-business-efficiencyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/in-india/eco-economy


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Ranked 50th. Ranked 2nd. 18 times more than

India

GDP > PPP $3,362,960,000,000.00 $11,628,083,000,000.00

Ranked 4th. Ranked 1st. 2 times more thanIndia

Gross National Income $477,000,000,000.00 $9,780,000,000,000.00


India

Gross National Income

(per $ GDP)$14.37 per $100 $83.23 per $100

Ranked 160th. Ranked 20th. 5 times more than

India

Human Development

Index 0.602 0.944

Ranked 128th. Ranked 10th. 57% more than India

Income category Low income High income:OECD

Income distribution >

Poorest 10%3.5% 1.8%

Ranked 22nd. 94% more than United

States

Ranked 85th.

Income distribution >

Richest 10%33.5% 30.5%

Ranked 38th. 10% more than UnitedStates

Ranked 54th.

Technological

achievement 0.2 0.73

Ranked 59th. Ranked 2nd. 3 times more than

India
http://www.nationmaster.com/graph/eco_gdp_ppp-economy-gdp-ppphttp://www.nationmaster.com/graph/eco_gro_nat_inc-economy-gross-national-incomehttp://www.nationmaster.com/graph/eco_gro_nat_inc-economy-gross-national-incomehttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_inc_cat-economy-income-categoryhttp://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/graph/eco_inc_cat-economy-income-categoryhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_gro_nat_inc-economy-gross-national-incomehttp://www.nationmaster.com/graph/eco_gdp_ppp-economy-gdp-ppp


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A Multipolar C-I-A World

C-I-A (China, India and America) are compared to understand relative strengths

of emerging powers. To be a global or a regional power depends on three

factors: a strong economy, a powerful military and a deep rooted political

capacity. Metaphorically, any global or regional power is three legged. Three

legged stools on one (Pakistan) and two (China) legs by nature are unstable.

With three relatively stable legs India at best an aspiring global power.

In a unipolar world, since the end of the Cold War in 1989, America became

uncontested super power standing on three powerful legs. American supremacy

in 21st

century is challenged by two emerging powers. America has adeteriorating economy compared to peaks in the Clinton (1992 2000) and the

Bush (200008) eras.

Important factor to note is that these three nations are achieving sustained

growth through peaceful competitive process, not through imperial designs.

Until mid-20th century, some Western democracies and Islamic dictatorships

were engaged in building imperial powers through extraterritorial expansions

and colonization. Muslim invaders colonized South Asia for about 900 years

(950 to 1857). Proselytizers and religious fanatics seeking to build an Islamist

Caliphate were looters and plunderers seeking riches in lands of non-believers.

Industrializing European nations for about 500 years (16 th to 20th century)

colonized many poor nations of Middle East, Africa, Latin America and South

and East Asia rich in commodities supplies. India was a British colony from

1857 to 1947.

The blog presents select data on the growth of India relative to other two

nations. In my opinion contrary to projections otherwise China is not likely tomatch or surpass America in less than two decades and in same period India is

likely to be closing in on China.

Comparison of select parameters for C-I-A

Commentaries on China: China accounts for up to 60% of most and 90% of

some industrially important globally produced commodities. Some hard facts

about China touting its economic strength follow:


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1. Chinas 19% of the worlds population; it consumes the worlds 53% ofcement, 48% of iron ore and 47% of coal and the majority of just about

every major commodity. By March 2011, China had

accumulated US$3.04 trillion in foreign currency reserves the largest

stockpile on the entire globe.

2. China set several new records: in 2010, China produced 11 timesmore steel than the US; it made and sold 18 million vehicles and for food

supply it had more pigs than in the next 43 pork producing nations

combined.

3. In industrial sectors, China has the worlds fastest train and the largesthigh-speed rail network; it is worlds numberone producer of wind and

solar power and it controls more than 90% of the total global supply of

rare earth elements.

4. In technology and intellectual property, China possesses thefastest supercomputer on the entire globe and in the past 15 years, it has

moved from 14th to 2nd place in the world in published scientific

research articles.

5. It also has dubious distinctions, e.g., Chinese consume 50,000 cigarettesper second.

Listed in references and notes are several recent commentaries on the impacts of

Chinas growth on global powers. The analysts are Fareed Zakaria (moderator

of the GPS, a CNN weekly program),Ian Bremmer(an executive at

Microsoft),Robert J. Herbold(WSJ, Op-ed) and Dr. Vikram Dalal (Professor of

electrical and computer engineering, Iowa State University). Collectively, these

authors present a picture of China that evaluates Chinas progress and how it

compares to that of America. As China continues to grow and the US continuesto decline economically, speculators ask: when will China match or surpass

American global dominance?

All analysts are well intentioned. Individually they presented a skewed picture

of Chinas growth. There is a need to develop a comprehensive picture that

compares progress, or lack of it, by each of three nations. To put it in relative

context the following data were assembled using Google searches.
http://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=true


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Comparison of Select Data for C-I-A

In 2010 the populations of China at 1.3 billion and India with 1.2 billion were

about 4 times higher than that of America at 310+ million, the third populous

nation in the world. China also had largest workforce and America had thelargest economy. Chinas labor force was more than 5 times that of America

and 1.7 times of India. Additional select facts are compared in the following

table.

Select Facts for two emerging and one developed Global powers 0712 2011

Facts China

(C)

India (I) America (A)

2010 GDP (PPP), $

Trillions.Bracketed are PPP estimates

for 2020

9.71

(22.6)

4.07

(10.2)

14.8

(28.1)

Per Capita GDP, $ NominalPPP $PPP

Factor (PPP/Nominal)

4,743

7,400

1.56

1,265

3,339

2.65

45,989

45,989

1.00

GDP Growth, % 9.1 8.5 2.4

Inflation, % 6.4 8.7 3.6

Labor Force, million 820 478 153

Unemployment, % 4.3 9.4 9.2

Fiscal Deficit, % of GDP 1.6 5.5 10.7

Gold Reserves, tonnes 1,054 615 8,134

Foreign Exchange Reserves $3.2

trillion

$310

billion

NA

World Prosperity Index, 58th 88th 1st


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position

Mobil Users, million 896 840 303

Internet Users 420 81 240

Life Expectancy, years 73 65 79

Literacy Rate, % 96 74 99

Infant Mortality Rate,% 20 50 6

Under 5 Mortality rate 21 66 8

Using nominal GDP numbers for each nation and its labor force in 2010

annually goods produced by each worker in China were worth $7,500, that for

India $3,200 and Americans produced $96,730 per worker. For wealth

generation Americans compared to Chinese were 13 times more productive and

Chinese compared Indians were 2.3 times more productive.

Health in India has improved, but compares poorly not only to China andAmerica but also to some economic peers (Brazil and Russia) and neighbors

(Sri Lanka and Bangladesh).

Chinese are expected to experience a 30% demographic decline by 2050. Unless

China improves its productivity by more than 30% and American suffers an

additional significant economic decline it would be unlikely for China to catch

up with American GDP by 2050.

ChinaIndia at a Glance

The following data suggests that India may substantially narrow the gap with

China in about two decades. Labor force of India in 2010 was about 58% of

China. Since population of India and China are comparable and China is

expected to experience a demographic decline in next few decades, India can

narrow the economic gap by accelerating its economic growth rate. It will have

to increase its labor force and improve productivity comparable to that of China

by adding more skilled and highly skilled workers to its manufacturing and highvalue added product sectors. The following data sizes up India and China.


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ChinaIndia at a Glance

Source: Sizing up Indiaand China, IIFL via Thomson Research, 1 November

2010

Parameters China to India ratio Indias lag

in years

GDP 3.8 11.0

Industrial

output

8.0 18.0

Steelproduction

12.3 18.0

Car

sales

5.0 6.0

Democracy vs Autocracy: A contention appears to be that a middle class

dominated society has a tendency to become politically democratic. May be,there is no guarantee that in long term democratic societies are any more

stable than autocratic societies.

Most of todays democracies were mostly autocratic societies; Europeanscolonized many autocratic nations for part or all of last few centuries.

Autocratic societies were mostly poor, up to 90% ruled by 10+% of

ruling establishments of royalty, warlords, clerics and merchant/landed-

gentry classes. Collectively the ruling BACWAS (bureaucrats, army,

clerics, warlords and scholars) establishment grew to be imperial powers

through extra territorial expansions. European nations through

colonization built imperial powers that lasted a few centuries and so did

the Muslim Caliphates. Each of these societies to varying degrees

managed with one or two of the three legs. In most cases they lacked

adequate political capacity. Demise of a strong autocratic

leader invariably led to political vacuum and chaos until the next

savior arrived.


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Chinas GDP was around $5 trillion in 2010 and it was less than $1trillion before 1980s. With a double digit GDP growth rates it took China

three decades to have a $5 trillion economy by concentrating on low paid

manufacturing jobs.

America:Dr Dalal in a diagnosis of the American decline offered a credible

description of the economic activity cycle per decade. How likely is American

economic decline to continue? According to Dalal the cycle has a life span of 10

years. With the market crash of 2007 08 the decline precipitated and it may

last through most of current decade.

The following are my observation on diminishing political capacity of America.

It is interesting to note that America has technological capacity to reverse trends

of its economic decline seen in last few years. However for next few years its

economy is likely to decline due to shrinkage of its manufacturing base and

high employment rates.

Starting 2001, two wars in three Muslims heart lands (Iraq and the Af-Pak region of Afghanistan and Pakistan) have strained American

economy. The decade long wars have cost America $4 trillion and it still

has a few more years (2014 and beyond) to go to neutralize the hub of

terrorism in the Af-Pak region by destroying the safe heavens protectedby Pakistan army. Its economic growth is stagnating and may even be

diminishing as it continues to struggle to extricate itself from the Af-Pak

quick sand.

America started shifting jobs to China during Reagan administration in1980s. Did we have a steady economic activity decline for 30 years? Not

exactly as America successfully replaced low paying jobs with high value

added technology products and services. In last 30 years, technology and

housing market bubbles appeared and were busted. With both

bubbles there were associated financial activities bubbles. It all came

crashing down in 2008.

Given 9+% unemployment rates it is reasonable to assume a steadydecline in American GDP. It would be interesting if Dr Dalal could

or would predict Americas GDP, both annual rates and cumulative for a

decade of 2011 21. In 2011 American economy is around $14.5

trillion.


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India: India built its political capacity over last 64 years and now it is focused

on building strong economy. India with 7% 9% economic growth for two

decades, overall as a global power is a distant third. For next few decades the

best India can hope for is to be a regional power provided it effectively manages

border disputes with China and Pakistan. It also needs to build economic

interests with commodities rich nations, especially for an assured steady supply

of energy and other raw materials to attain a double digit growth needed for

augmenting capacity for steel, cement, technology and intellectual property

based electronic industry.

India has been concentrating on building technology base andmanufacture of high value added products. Indian economy being focused

on high (up to 70%) internal consumption is less exposed to externalpolitical pressures.

To sustain its supply chains for exports of technology and high valueadded manufactured products and imports of raw materials it is building

up its navy to assert a dominance in waters all around India (Bay of

Bengal, Indian ocean and Arabian Sea, etc).

Except in software developments the growth of manufacturing of highvalue products has been slow but steadily rising. It has moved up fromthe out sourcing services provider to technology dominated R&D

activities in many industrial products.

In addition to being a major global generic drug provider itsmanufacturing industries include deployment of communications

satellites and many advanced military products.

With 20 operating nuclear plants (4,780 MW in 2011) and more thandozen large plants at various stages of constructions (20,000 MW by2020 and 63,000 MW by 2032) for completion in about two decades,

India is getting ready to export indigenous designed and developed 220

and 540 MW heavy water nuclear power plants.

It is marketing Pratham series super computers. Its economy in two decades grew to about $1.5 trillion.


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India v. China: Both India and China have net job gains whereas America and

Western nations have suffered job declines judging from near double digit

unemployment rates.

Chinas projected to suffer a demographic decline from 1.4 billion (2020)to less than a billion from 2020 to 2050. India added 180+ million

populations in first decade of 21st century and at this rate of population

growth it will be most populous nation after 2030. America has

maintained its population growth rates by allowing immigrants to enter. If

jobs decline in America is not arrested in near future, it may not

see technology savvy immigrants coming to its shores to help it continue

on with its established business plan of attracting skilled foreign workers.

For China demographic decline means its low paying jobs may disappearand to maintain production consistent with consumer demands it will be

forced to improve productivity by offering better salaries

to manufacturing workers. Without an edge in R&D, productivity can

not rise. There may be all kinds of pressures and chief among it would

be political capacity. As the numbers of middle class go up, its

political structure may come under additional social pressures.

In 25 years (1990 -2015) poverty in India is expected to decline by 22%or about 1% a year assuming a 7% to 9% annual GDP growth. The

poverty data represents declining population of illiterate old people due to

natural attrition and increasing level of literacy as more and more youth

get educated.

If the education system for youth is reformed to incorporate skills basededucation such as introduction to basic rural technology engineering,

math, and agricultural science there is a possibility that with a rapid

decline in poverty rate economic growth may accelerate.

It is fallacious to claim that corruption and asymetric distribution ofwealth is responsible for high poverty levels in India. Such claims ignore

facts that generational cycle of poverty requires skilled based education

for the poor to generate wealth.

Issues like Lokpal bill may bring down corruption but it may not havemuch influence on poverty reduction as with implementation of RTE

(right to education) by nature takes about a decade to show improved


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results. The RTE was implemented a few years ago and there are many

states that have resisted implementing the RTE reforms.

It took India two generations (40 years) of IIT and higher education toreap benefits of wealth generation. RTE presumably will have sameeffect in helping those who want to get in job market as soon as they

complete 7th to 10th level high school education.


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Conclusion

China and India have come a long way since they fought a brief border war in

1962. Both countries are not only developing economically at rapid speed, but

they are also making extraordinary efforts to increase mutual trade and toimprove bilateral relations. Chinese President Hu Jintao's state visit to India last

November reflects the progress of bilateral dialogue on a range of issues over

the past few years. Rapid economic growth and the expansion of bilateral trade

have fuelled the development of closer relations.

Trade between India and China reached 18 point 4 billion dollars last year -- up

from only 338 million dollars in 1992. Both countries pledged to double trade to

40 billion dollars a year during talks in New Delhi between Indian Prime

Minister Manmohan Singh and Chinese President Hu Jintao.

Despite these developments, several analysts say India remains suspicious of

China's relationship with its long-time rival, Pakistan. And China is concerned

about New Delhi's growing ties with Washington, especially their landmark

nuclear agreement allowing India access to civilian nuclear technology. Some

expect the United States to deepen ties with India - a democracy it views as less

threatening - as a counterbalance.

However, Prof. Bottellier says concerns that the Chinese are worried about

India's relationship with the United States are overblown: I am very pleased

that the United States and India are developing good, constructive friendly

relations. That is very important for both countries, says Prof. Bottellier. I do

not think that the proposed civilian nuclear agreement between the United

States and India is resented or rejected by China. In fact, the Chinese

government has been remarkably silent on that subject. One would have

expected the Chinese to have protested, but they have not done so. Even during

the visit of Chinese President Hu to India in the latter part of last year, this was

not the subject of discussion.

Although the vast majority of the rural population in both countries remains

illiterate and impoverished -- and many structural and institutional problems lie

ahead -- many analysts say there is no doubt about the enormous economic

potential of China and India in the 21st century.

be project_india china usa

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