India and China : Comparative Political Economy

INDIA and CHINA : AN ESSAY IN COMPARATIVE POLITICAL ECONOMY

MEGHNAD DESAI

PAPER FOR IMF CONFERENCE ON INDIA/CHINA, DELHI, NOVEMBER 2003

INTRODUCTION :

India and China are two of the oldest and still extant civilizations. For Europeans, they

were legendary seats of immense wealth and wisdom right up to the eighteenth century.

Somewhere between the mid-eighteenth century and early nineteenth centuries, both

these countries became, in the European eyes, bywords for stagnant, archaic, weak

nations. For China, this happened between the adulation of Voltaire and the cooler

judgment of Montesquieu; in India's case, it was the contrast between Sir William

Jones's desire to learn things Indian and James Mill's dismissal of Indian history as

nothing but darkness.

Twentieth century brought nothing but a deepening of the perception of the two countries

as bywords for misery and the perceptions were not too far behind actual conditions of

the two countries. For one thing they were and remain the two most populous countries.

In 1820, they had a combined population in excess of half a billion and by 1900, 700

million. Within the twentieth century, their population had trebled. But they were also

two of the poorest countries, typically thought of as locations of famine, disease,

backwardness and superstition, of women with bound feet and men with long pony tails,

untouchables beyond the pale and myriads of gods with many heads and limbs.

In mid-twentieth century, particularly in the 1960's, the fortunes of these two countries

seemed to have reached their nadir. They were independent republics supposedly

launched on their path of development, but both suffered devastating famines. China's

famine was hidden, perhaps more from China's own ruling classes than from its people

or the world, but it had followed swiftly upon the debacle of Great Leap Forward, a

memorable piece of policy making by fantasy. India's double harvest failure in 1965 and

1966 brought India to its proverbial knees in terms of foreign policy and dependence on

US food aid. These two countries were "basket cases" in the then fashionable terms of

international diplomacy.

Within the following forty years we are discussing China and India not as failures nor for

their ancient wisdoms, but as dynamic modern economies. The Economist has to write

editorials to tell the world not to be afraid of China's economic power. American

legislators pass laws to prevent their businesses outsourcing work to India's software and

telecommunication services. China ranks as the second largest economy in terms of GDP

in PPP dollars. Together the two countries account for 19.2 % of world GDP- China

11.5% and India 7.7%. This is still below their share of world population 37.5%- with

China 21% and India 16.5%. 2

National income estimates covering a long period are, by their nature, broadly indicative

rather than precise. [ Beyond this vague assertion I do not intend to go into statistical

measurement problems ] Angus Maddison, in whose debt the profession is for making

these calculations his life time work, gives the shares of world GDP and population of

China and India for two earlier dates in the 20

th

century as follows

GDP% POPULATION%

China India China India

1913 8.9 7.5 26.4 17.0

1950 4.5 4.2 21.7 14.2

1998 11.5 7.7 21.0 16.5

[ Maddison (2001)]

The table above succinctly describes the course of the two economies over the 20

th

century. They start with the share of income below that of population. Over the previous

century they had slightly different trajectories. India's per capita income is estimated to

have grown from $533 in 1820 to $673 in 1913 while China's per capita income declined

from $600 in 1820 to $552 in 1913. [ all money sums in 1990 international dollars,

hereafter Maddison dollars-M$ ] But during the first half of the twentieth century both

countries saw a decline in their per capita incomes. India from M$673 in 1913 to M$619

in 1950 and China from M$552 in 1913 to M$439 in 1950.

1

This says two things: India and China both suffered a declining per capita income and a

rising population during the first half of the 20th century, but that India was slightly

better off than China between 20% [Kumar] and 40% [Maddison]. By 1998 this is

reversed. Both countries are better off, but China is much better off than India. China's

per capita income was $3,117 while India's was $1,760. Thus, while India roughly

trebled its income,