THE FUTURE OF AUTOCRACIES AND DEMOCRACIES - A Comparison Between the Indian and Chinese Economy

SInce the late 1970’s, China has moved from a closed, centrally planned system to a more market-oriented one that plays a major global role.According to China’s official statistics, average GDP growth over 1980-2014 was 9.8%. Few nations if any, in modern times have come close to such an accomplishment and there is little question about the incredible ingenuity of the Chinese. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2016 stood as the largest economy in the world, surpassing the US in 2014 for the first time in modern history. China became the world's largest exporter in 2010, and the largest trading nation in 2013. However, China's per capita income is still below the world average.

China ofcourse has been long at the top of market headlines. But with its newfound ranking as the largest economy in the world, the world has become even more with its economic fortunes and more recently, its misfortunes. As one closely examines the unforeseen details of the Chinese Economy, its prospects for sustained growth, are seemingly questionable. Aligned with China’s faltering, India as a nation is seen to be emerging as a powerful and ever diverse economy.

India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services.India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization measures, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and served to accelerate the country's growth, which averaged nearly 7% per year from 1997 onwards.

In the coming years India is positioned much more favourably than China, in terms of growth. The International Monetary Fund has forecasted that india will witness a GDP growth rate of 7.5% in the coming years, due to improved investor confidence, lower food prios and better policy reforms. As per the latest Global Economic Prospects, repost by The World Bank, India is leading the World Bank’s growth, chart for major economies. There has also been a considerable improvement in the state of the country’s macroeconomic environment over the past few years. According to The World Economic Outlook Update ( 2016), Indian economy is expected to have a stellar growth rate, despite the uncertainties in the global market. The outlook for India's long-term growth is moderately positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. India is likely to become the world’s second-largest economy by 2030, next only to China and overtaking the US, according to Standard Chartered’s long-term forecast released on Jan. 08. The UK-based multinational bank also predicts that based on nominal GDP using purchasing power parity exchange rates, China will overtake the US by 2020.

Figure 1.1 Forecasted Growth of India as compared to other Major Economies

Although China is said to have great potential for sustained rapid growth, that he world has observed in the last few years, the policies of ultra high investment, and debt intensification make China extremely vulnerable to an unpleasing yet sharp deceleration. China’s investment rate, of 44% GDP is unsustainably high. Although this helped China circumpass the 2008 crisis, returns on investment have collapsed. Due to its vast size, China has hit the end of the road on export-driven growth, having a lower income per head as compared to all other Asian economies. Moreover, when examined closely, economists from The Financial Times have observed that China’s working age is also declining. Keeping in mind these factors, it would be righteous to say that sustainable growth at a rapid speed, seems highly unlikely.

Figure 1.2 The Decelerating Growth Rate of China

For over a decade and a half, China has benefitted from the reforms introduced by Zhu Rongji, during the time period 1998 - 2003. No such comparable reforms have happened since, and even today credit is being allocated to state businesses, as the influence of the state is growing large over private business. This amounts to an under and over allocation of resources, thus distorting the allocative efficiency of the country as whole, posing hardships to economic progress and financial stability.

Thus we can conclude that autocracies such as China may fail to replicate the positively skewed economic growth pattern democracies such as India are expected to thrive with if they focus on further renewing their politics and policies, in this hostile global environment.

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