Differences and Similarities between Chinese and Indian Economies - Case Study Example

Download file to see previous pages China and India have some similar country economic profiles and to the same extent have some differences. This has an implication on the type of policies that the two countries enact in order to overcome the challenges that they face. Some of the economic issues that can be compared between the two countries include inflation, unemployment rates, the high levels of inequalities in the two countries, high national debt levels and the growth trajectories of the two countries. These economic factors are important because they determine the general economic climate in the countries, the relationship of the country with other nations and the type of policy that they will adopt in handling these issues. Inflation in China is caused by the tendency of the Chinese government to peg its currency, yen on the US dollar. This means that the stronger the Chinese economy becomes, the US economy becomes weaker, therefore, making it difficult to keep the Yuan at stable and manageable levels hence making China lose the benefits that would come with such a policy. In order to maintain Yuan against the dollar China buys US dollars from the open market and as the economy of united states gets weaker, China has to buy more dollars, which has led to it printing more money for the activity as the Us attempts quantitative easing. Printing more Yuan to buy dollars means that China is adopting an expansionary monetary policy, which is a replica of what is happening in the US. On the other side, US has also been printing more dollars which get absorbed into the Chinese economy when American buy good from China, this has the effect that while more dollars enter the Chinese economy, no Yuan leaves China, therefore, increasing liquidity in the market which leads to inflation. Recent inflation in India has been caused by a combination of several factors, these factors include deregulation of administered prices especially in the energy sector, which has led to upward push in prices of fuel, this has spilt over to other sectors. In the agricultural sector, supply-side inflation caused by a shortage of agricultural products has pushed the prices of agricultural goods up as demands exceed supply. Increase in indirect taxes in the 2012 budget has also led to increase in commodity prices, in addition, increase in government spending through schemes such as NREGA have also contributed to rising inflation by increasing liquidity in the market (Srinivasan, 2006). ...Download file to see next pagesRead More