Economic Growth


When it comes to economic growth models in developing countries, some analysts think that India will become more like Mexico than China in coming years. Critically examine why. (200 Words)
The International Monetary Fund’s (IMF) forecast that the India’s growth rate is likely to exceed China by 2016 has recently grabbed world attention. However, some analysts believe that India will become more like Mexico than China in coming years. This is because:
    1. China has invested large physical capital in manufacturing while India’s low productivity manufacturing sector is full of small size firms. Ex: The share of MSMEs in manufacturing employment is 84% in India versus 24.8% for China. Similarly in Mexico, more than two-fifths of the country’s workers are employed in small and informal businesses. Small firms cannot reap economies of scale, cannot employ the best technology or management and thus are relatively less productive.
    2. Both Mexico and India have a demographic advantage, at least for the next 20 years. However, if not properly skilled, trained and employed, the young population will continue to experience disguised unemployment
    3. Democracy in India and Mexico, in contrast with Communist rule in China, will not enable an iron fisted control of labour. Thus, china was able to provide cheap labour.
    4. Government policies play a key role by providing adequate infrastructure. Public spending on infrastructure in Mexico and India is far behind that in China. due to excessive red tape, difficulty in land acquisition, lack of basic infrastructure and anti-business labour laws; possibility to attract investment is difficult.
Thus for India to emerge as next China; we need to focus above mentioned points; else we might become next Mexico which in spite of showing great potential in 1994 prior to signing NAFTA was unable to achieve the much talked about economic potential.
[Additional information – Both Mexico and China focused on export-led industrialisation (not on import-substitution industrialisation). Mexico also signed free trade agreement with US but as 2/5th population was in small and informal sector which did not receive attention, labour also remained not as cheap as china. Thus, while china succeeded with its policy of export-led industrialisation, Mexico did not]
Critically examine why economic growth in India during last two decades has not resulted in the growth of jobs during the same period. (200 Words)
India has witnessed much better economic growth during last two decades than it previously had, but certainly employment generation has not matched up with the growth rate. The reason for such a jobless growth is inherent in the policies that have been followed for economic growth.
Reasons for jobless growth:
    1. Weak Manufacturing sector growth: While every other nation in the world has achieved economic growth by gradually shifting from agri to manufacture then to tertiary sectors such as services. Indian policy was an abrupt shift from agri to services. So the jobs (semi-skilled to skilled) which could have generated in manufacturing sector have lost.
    2. Unskilled workforce: with rapid growth in young population India has lagged in adequately training its youth. So demographic dividend has not been properly utilized.
    3. Education policy: last decades has seen mushrooming of poorly regulated private engineering and mgmt. colleges, producing huge number of degree holders but unskilled for the job. Even govt institutes and vocational centres have largely failed to meet the objectives.
    4. Less focus on MSMSEs: While in India a large population is dependent on these unorganised sectors for living. MSME sector has witness poor growth rate during last decade.
    5. Automation in different sector has also resulted in loss of manual jobs.
    6. LPG reforms: while it opened up Indian economy for huge investments from across the world the relative in-competitiveness of Indian industries at the time of reforms led to investment and growth in only few sectors like IT, Banking etc.
    7. Poor R&D investment, Lack of better infrastructures etc.
As most of reasons for jobless growth are the results of either poor policy decisions or lack of implementation/corruption at groundwork which has resulted in gross inequalities in society.
There is dire need to provide skill training to our youth, Capital investment in Infra, better education policy, and investment in R&D etc. if we want to achieve the goal of social and economic democracy for all.
Recently the IMF forecast that India’s economic growth rate would be higher than China’s. Do you think India should rejoice at this prospect? Critically comment. (200 Words)
Both IMF and World Bank predicted that India’s economic growth rate will surpass that of the China’s, both this year and the next year too. While India’s growth is likely to improve from 7.2% in 2014 to 7.5% both in 2015 and 2016, China’s growth is projected to slip from 7.4% in 2014 to 6.8% in 2015 and further down to 6.3% in 2016, predicts the World Economic Outlook of IMF.
These numbers may be music to the ears of a layman, but to a keen observer these are no cause for euphoria. A critical comparison of both the economies will make it clear that the time is not yet ripe for rejoice.
    • While China is a $10 trillion economy, India is only a $2 trillion economy.
    • While China’s compounded annual growth rate was over 10% between 1990 and 2013, the best that India achieved was only about 9%, that too between 2003 and 2009.
    • While China’s per capita income is $3,500, India’s is hardly a third of it.
    • While China’s savings rate is 51% of GDP, India’s is only about 30%.
    • While a quarter of India’s households have no electricity, China has full coverage.
    • While India’s literacy level is 74%, China’s literacy rate is 95%. This puts India’s ability to effectively utilise its demographic dividend in question mark.
These statistics present a clear picture on how far India is lagging behind China. A little improvement in economic growth rate, once in a while, does not bring any significant change in economic strength and development. Consistency is required.
In order to bring real economic development in the country, India should adopt various measures.
    1. Boost household savings by improving employment and financial inclusion
    2. Create a policy environment that encourages ‘Make in India’ initiative
    3. Invest more in scientific research and skill development
    4. Deflate real estate bubble gradually
    5. Keep inflation under check
Thus, instead of rejoicing at the numbers, India should think of ways to improve further and maintain consistency. In this process learning from the experience of China can certainly help



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