Saturday, June 6, 2015

Are India and China growing or recovering?

Labor drove GDP

All of the media project China and India as fast growing economies of the world. And we seem to take pride in that. But look back into the history (not decades but centuries), you will know that India and China contributed to greater portion of world GDP. They were the biggest economies of the world. Asia had larger population concentration and so had largest share in the world GDP too. But the driving factors would not remain same forever.

Productivity and Politics drive GDP

Taking a look at chart shows that things started changing the 19th century. Both India and China missed the Industrial Revolution. Europe benefited hugely (at the expense of India and China). Colonialism by European countries and unfair trade practices did hurt the economies of Asia badly. Two world wars decided how things would shape in future. Russia (Stalin) won the war against Germany (Hitler) but US made better use of changing situation. And there is no look back for them till today.

Other things to note is advancing technology, new inventions such as IC Engine helped productivity to increase in a different scale. They could produce more with less people. And their political strategies backed with weapons helped them win new trade territories. Higher production and larger markets helped the economies of Europe and USA flourish.

Playing catch-up

Though depressed and beaten (economically), both China and India would transform themselves and get ready to play catch-up. But it took few decades to go through damage control mode into recovery mode. China started its economic reforms during the end of 1970’s and India began its efforts during early 1990’s. This restructuring helped them grow and expand their economies in the last decade and become fastest growing economies of the world. Since China started its efforts earlier than India, it is a bigger economy than India. But in the next two decades, India would have higher growth rates than China and would reduce the gap.

Will they become super-power again?

Population concentration is still highest in Asia. But productivity is comparatively low. Improving the infrastructure, investments in technology, better awareness of international politics would help them earn back their place. Becoming a super-power should not become the aim. We need to power to defend territory but it is trade which helps us grow. And more than GDP, human development index should become the priority. GDP and the resulting power would follow us.