The political economy of growth in China and India

Abstract

This paper attempts to examine the growth performance and its impact on inequality and poverty in China and India. The recent upsurge in growth rates in China and India is seen widely as the "success" story of globalisation. It is also claimed that these developments will make a significant impact on the reduction of global inequalities and poverty.Although a number of scholars have analysed the recent economic performance of China and India, however, these studies have not taken into account the past policies and its impact on current performance. We find there is a gap in the current discussion, which overlooks historical and economic factors on the recent performance.This article critically asses the claimed fall in global poverty due to mainly the rise of China and India in recent years. The article questions the "pro-globalisation" argument, which suggests that there is a link between 'market liberal' free market polices and falling poverty. It is argued instead that the evidence concerning poverty reduction is ambiguous, and is not that the most successful economies have adopted pro-globalisation policies.Studying the developmental changes taking place in these two countries is important because they together account for 37.5% of the global population. These populous neighbours, regarded as symbols of poverty and failure until two decades ago, contain large numbers of people are living below the officially defined poverty line. Key WordsChina, India, neoliberal economic reforms, economic growth, FDI, poverty, inequality, inter-sectoral and regional variations. IntroductionThis study is a modest attempt to understand the dynamics of the development of the economies of China and India, particularly since the adoption of neoliberal economic reforms. Although a number of scholars have analysed the recent economic performance of China and India, (Ahluwalia, 2004; Bhalla, 2003; Srinivasan, 2006 and others) however, these studies have not taken into account the past policies and its impact on current performance. We find there is a gap in the current discussion, which overlooks historical and economic factors on the recent performance. We will also critically analyse the issue of poverty reduction in these two economies presented by international financial institutions. (World Bank, 2006)

Financial Crisis and Its Impact on the Economies of China and India

“…Foreign investment flows increased rapidly from US$ 4.9 bn in 1995-96 to $ 29.2 bn in 2006-07 and then more than doubled to $61.8 bn in 2007-08. This dramatic increase was largely due to the relaxation of sectoral ceilings on foreign shareholding and the further liberalization of rules governing investments and repatriation of profits from India (Siddiqui 2009b). We must not forget that liberalization of the economy began in 1991 whereas the sharp rise in foreign investment flows occurred only recently (Chandrasekhar and Ghosh 2004).…”

“…Such countries constitute approximately 80% of the global population, representing about 20% of the world's economies. Hence, even though China is deemed one of the world's economic powerhouses (Arrighi 2007;Siddiqui 2009b;Dyer 2009a;, it is lumped into the category alongside much smaller economies with a great deal less resources, like Tunisia. Both China and Tunisia belong to this category because both have embarked on development and economic reform programs, and have opened up their markets.…”

Challenges for Industrialisation in India: State versus Market Policies

“…For instance, initially the development in Japan, then South Korea and most recently in China has been the most spectacular and the most widely discussed (Siddiqui, 2009;Das, 2006). However, proponents of 'outward-looking' industrialisation policy overlook the differences among the East Asian countries that successfully followed this policy (Siddiqui, 2013).…”

“…These two countries together constitute nearly 40% of the world's population. Therefore, what happens to China and India is of great importance to academics and policy makers (Siddiqui, 2009).Manufacturing activities can be regarded as a critical engine of growth for the economy. The development of the manufacturing sector is seen to be crucial in order to allow India to expand supply and reduce the risk that the current growth spurt might not be sustainable because of supply side constraints (The Economist, 2007).…”

Foreign Capital Investment into Developing Countries: Some Economic Policy Issues

“…(Chang, 2004:693-94) It appears that despite harsh regulations against foreign capital, the US was still the largest recipient of foreign capital. Similarly today, China is the largest recipient of foreign capital, despite various state regulations (Siddiqui, 2009). Also, in the UK, when Nissan invested in car manufacturing in 1981, it had to accept procuring 60% of its value added locally (Note 4).…”