Deep-Insight

Indo China Series Article 2: Why India Will Overtake China In The Economic Race 2

India and China are two names which no longer need any introduction throughout the world. Two countries earlier considered as the face of less developed and backward world are accelerating fast and overtaking many old champions in the economic race. As everyone knows the fact that both these economies are on the fast track and are poised to become the world leaders, so I won’t waste this article praising their growth rates. Instead we’ll probe into the question “which one will reach the top”. This series will span 3 articles.

In this part we consider the question “Why India will overtake China in the economic race?”

The first advantage India has is that it boasts of a very large English speaking population. English being commonly accepted international language makes communication a very comfortable experience. This large population has been amassed as the result of compulsory English education introduced in most of the education boards of India. Even those people who don’t speak much English can understand it to a certain extent, local languages have absorbed English words over the years of British rule. This gives Indians an edge in International Business dealings, Service sector industries, Tourism industry etc.

Next factor which is tilting the balance in India’s favor is demographics (a study of human population). There was a time when a large population was considered as a disadvantage for a country but now this has changed completely. Today large population not only means a larger working population but also a larger share of world markets. India and China both have 1 billion + populations and thus sport huge markets and working population. But there is a difference in the two cases. Let us see how

Chinese government had imposed strict population control by implementing “One Child Policy”. According to this policy if a couple has more than one child then the extra child will not be eligible for free state services like education. Thus having a second, third child is very costly in China. So in terms of labor force intake (birth rate) has dropped while the retirement age has not changed, this will result in a drop in the percentage of total population which contributes to the work force and hence the economic development. Graph shown above displays the data from “United Nations Economic and Social Survey 2007” reaffirms this theory that Chinese working population will eventually start decreasing as is the case with many European countries today. On the other hand India’s working population seems to be showing an increasing trend till at least 2040. Even today median age of Chinese population is 32.5 years (Year 2005) whereas India’s median age is 23.8 years and according to the UN survey this difference will keep on increasing.

So summarizing the above point China will face a situation when lesser number of workers would be available for a huge economy that is increased pressure on the work force, whereas India can continue to keep the costs low because of continued abundance in the labor force both in absolute numbers and the percentage composition. Apart from this Indian population would be younger compared to their Chinese counterparts and hence would provide base for larger consumer spending. It is understandable that a younger person will be a bigger and more dynamic spender for a longer duration of time.

Now over to the second aspect of changing demographic scene

Along with economic development some other changes also took place in China, improved healthcare services and better nutrition led to increase in life expectancy. However the improvements in China are considerably more effective and this gets reflected in their life expectancy of 73 years (year 2005) compared to India’s 64.7 years (year 2005). This has a flip side, as shown in the graph above (sourced from UN economic and social survey 2007) that the number of retired people in China is increasing at a higher rate than in India’s case. This trend will not only put extensive pressure on the pension and healthcare systems but it will also put pressure on the economy which would already be suffering from a decreased workforce. India here has another advantage that increasing working population and low growth rate of retiree population both factors give India an advantage over China

This brings us to the end of 1st part of this Indo - China series, Reader Comments are invited.

Indo China Series Article 2: Why India Will Overtake China In The Economic Race 2

K.V.S.