India V. China Gdp Per Capita

India v. China

Michele Collu

Managerial Economics

March 12, 2016

Abstract

India and China have experienced outstanding economic growth for the past 30-40 years. This paper will compare some key elements of the two countries to determine their differences and predict economic outlook for the future.

1. India v. China GDP per capita and growth rates

Table 1 below displays the GDP per capita (Total GDP divided by the Total Population) for India and China from 2014-2017, and relevant growth rates.

Table 1:

[Source: http://statisticstimes.com/economy/china-vs-india-gdp.php]

GDP per capita in the chart is measured in both nominal and purchasing power parity terms. The two measure have the following differences:

• Nominal GPD simply measures the value of all the finished goods and services by a country at current market prices, i.e. at the monetary value (2).
• Purchasing Power Parity is measured by comparing the value of products and services across countries, beyond current market price and exchange rates with reference to a basket of goods (3).

For both measures of per capita GDP, Cina has higher values in absolute terms.

However—what is interesting, looking at the chart, is that while India’s Nominal GDP is, on the average, ~25% of Cina’s Nominal GDP per capita, on the other hand, GDP adjusted for Purchasing Power Parity India’s per capita GDP is, on the average, as big as ~45% of Cina’s GDP adjusted for Purchasing Power Parity.

If one takes 2016 as example: India’s Nominal GDP per capita is $ 1,941.599, hence 22.42% of Cina’s $8,659.388. As per PPP GDP, India’s per capita is $ 6,745.676, hence 45.53% of China’s $ 14,812.995.

As far as growth rates go, in the last 3 years, hCina has gone from a higher growth rate of 7.36% than India’s 7.17% in 2014, to being overtaken by India in 2015 (7.46% India v. 6.76% Cina), and is expected to fall at 6% growth rate by the end of 2017, while India is expected to grow at 7.55% (1).

1. Looking back at the last 30 years

Table 2 below plots India’s and China’s Nominal and PPP GDP per capita measures, from 1980 to 2014.

Table 2:

[pic 1]

[Source: http://statisticstimes.com/economy/china-vs-india-gdp.php]

Looking at the graph one notices that, for both measures (Nominal and PPP), in the decade between 1980-1990 the two countries were very close to each other.

By 1992, however, China distinctively took over and starting growing exponentially more than India in terms of both Nominal and PPP GDP, while India continued a path of steady, yet less steep growth as displayed in Table 2 above.

1. What’s the cause of this expansion?

China began adopting heavy economic reforms more than a decade earlier than India, with Deng Xiaoping’s fang-shou (‘letting go’ and ‘tightening up’) policy between 1978-1989.

These reforms transformed the Chinese agricultural system and brought about an opening of the industrial sector both in favor of: (i) local enterprises growth and (ii) increasing efficiency in state-owned enterprises.

India, on the other hand, began reforming its economy only around 1991.

Hence the more rapid expansion of China’s Economy vs. India’s in the last 30 years is largely due to China having a 10+ year head-start with its economic reform efforts.(4)

1. Important Factors Distinguishing India and China

4.1. Population Growth

Cina has the largest world population with 1.39 billion, while India is at 1.27 billion (as of 2011).

However, given that India has higher growth rate of 1.2%, compared to China’s 0.5% (as of 2013), and higher fertility rate: 2.5% in India against China’s 1.7% (as of 2012), predictions see India overtaking China around 2030, per Table 3, below.

Table 3:

[pic 2] 

[Source: http://statisticstimes.com/population/china-vs-india-population.php]

Both have countries have benefitted from low dependency ratio (i.e., the ratio of the population younger than 18 years of age or older than 65 years of age to the total population) and, of 2014, the countries have the following dependency ratios per Table 4, below: