The Rise of the Indian and Chinese Economy - Term Paper Example

The rise of the Indian and Chinese economy Introduction Industrialization in the 20th century made the developed countries what they are today. United States and United Kingdom along with other European countries have seen periods of great growth in their economies and development has also increased in these regions. These countries were the first to use industrialization to their advantage but other countries like China and India in later part of the 20th century started to adopt the policies of rapid industrialization. Today, even at a time when economic recession has jolted the whole world economy of China and India continues to grow at a rapid pace. In this paper prospects of these two future economic giants will be discussed along side with their potential to grow. The many factors that make these two countries future contenders for economic supremacy will also be elaborated. History of India and China Immediately after the 1949 revolution the economic policies of China were set aiming at lowering consumption and increasing the process of industrialization. With lower expenditure the economy was able to make more and more factories. In 1978 agricultural sector was reformed and private sector was also allowed to function for the first time in China. These economic policies are said to be the major contributor towards the success of Chinese economy. The process of privatization in China has also increased the overall economic activity of the country. The story of India is not very different China. After independence Indian economy was characterized by extremely protectionist policy. But the policy of liberalization took effect in 1990’s and after that the economy has shown great prospect. Experts name India as the next big economic giant after China. The growth that India has taken in the last decade of 20th century and in the early 21st century is amazing. Economy of India and China: Prospects and Potentials The rapid industrialization taking place in the two countries have made their economies so strong that there future is prosperous. The potential of the two countries is great. China is the world’s largest exporter. Its growth in the previous 30 years has been 9.5 percent. India is also known as the second largest growing economy of the world. So the prospects are great for the two economies. Chinese economy actually benefits from it exports. China imports great quantity of goods and after value addition exports at higher profits. It relies on small profit margins and for this reason it is able to export at low prices. This is something which distinguishes China from other economies. China is able to develop industries for which China does not have any raw material. Usually countries tend to rely on their own natural resources and develop industries for which they have an abundant natural supply of raw materials. But the focus of China is on all industries. Another major reason why China’s future seems prosperous is due to the support the industrial sector gets from the government. Chinese government knows that industries derive their economy so they have taken measures in order to ensure that industries get subsidies on electricity and in other areas. This will help the Chinese economy in the long run as the firms will continue to make cheaper goods and these goods will have a competitive advantage over the products produced by other countries. Productivity growth of China is also very impressive and this is one of the major reasons why China’s economic success is almost guaranteed. The growth of Total Factor Production (TFP) in China is the greatest in the world growing at the rate of 4 percent per annum (The Economist, 2009). This shows how the productivity is growing in China. This process will continue to grow in future as well and for this reason the future of China is also great and prosperous. Another important property of Chinese economy is cheap labor. This, I believe, is the most important reason why China has develop and will continue to do so in future as well. The labor force of China is hard working and productive at the same time. They also charge less for their services and this allows the cost of production to lower increasing the profits margin and in turn an increase in exports takes place. The same product, which a worker produces in United States or Europe, is produced in China at a lower price. For this reason demand for Chinese exports is always climbing. Cheap labor will continue to benefit China in coming years to come and foreign investment is also coming in the country because of cheap work force. Also government gives subsidies on electricity so this also attracts international firms to set up production units in China. China was also able to survive the current economic recession. This shows that Chinese economy is strong because the crisis that hit the developing countries was not able to significantly affect China in the long run (Giele, F. 2008). The potential of Chinese economy is to grow even more because the government has more money at its disposal now than it had 20 years ago so this indicates that China will grow even more. Government is investing money in industries and other projects in order to ensure that the growth rate continues to grow. This is a clear indicative that economy has potential to become the strongest economy of the world. Indian economy is named after China as the second most growing economies of the world. It shares some important characteristics with China. But in many aspects Indian economy is very different from China. The number of skilled labor in India is great. India produces engineers and software designers and experts in many fields in bulk quantity. The skilled labor force of India is also very cheap and for this reason India has been a major source of outsourcing. Companies are outsourcing their call centers and production units to India because of the cheap labor cost they incur in India. The software industry continues to grow at a great speed. Software industry is going through a boom in India currently. Many countries hire the services of Indian software houses because they promise high quality product at a very low price. This property makes India a great force in world economy. Outsourcing is increasing everyday and the government policies of free market are also helping the growth of Indian economy. The prospect of software industry of India is very bright. Exports of India are also going at a great pace, especially in the current year (Handoo, 2010). Industries in India are also thriving as the cost of making goods is considerably lower than other countries. Because of this exports are gradually increasing with more and more countries trying to buy from India. One difference between China and India is that the India is not wholly reliant on external demand. There is great demand in the country as well of goods and services and industries try to cater them as well. So the focus is not entirely on international markets but also on domestic markets. India is also improving its tax returns structure and other troubled areas like corruption and terrorism. This will help the Indian economy in future as more and more companies will come and bring foreign direct investment in India. Currently 400 of the 500 Fortune 500 companies are operating in India (Khan, 2007). This shows the prospects these companies see in India. India has many problems like religious intolerance and other issues that hinders in its development. If India can work something about these issues then surely India can follow China in its quest of economic supremacy. Other than that the prospects of Indian economy is great and it surely has a significant position in future. Conclusion India and China are both future global giants. They have shown tremendous potential of growth in recent years and are on their way to become economic super powers in coming years. The prospects of both the economies are great mainly because of their liberal policies and lower cost of production. Works Cited Page Giele, Frans. China’s Economic Prospects in Turbulent Times, 2008. Web October 30, 2010. < http://fransgiele.be/freematerial/2008essaychinaeconomy.pdf> Khan, Faryal. Challenge to Indian Economy. Pakistan Times, 2007. Web October 30, 2010. Secret Sauce. The Economist, 2009. Web October 30, 2010. < http://www.economist.com/node/14844987> Read More