Chapter Notes

Development Experiences of India: A Comparison with Neighbours

Introduction

In our modern, globalised world, understanding the economic strategies of neighbouring countries is essential. Nations, especially in the developing world, often compete for the same limited space in global markets. This chapter compares the development journey of India with two of its most significant neighbours: Pakistan and China.

While these nations are neighbours, their political systems are very different:

• India: The world's largest democracy with a secular and liberal Constitution.
• Pakistan: A system with a militarist political power structure.
• China: A command economy under one-party rule, which has more recently started to adopt liberal economic policies.

By comparing their paths, we can better understand the strengths and weaknesses of each country's approach to development.

Developmental Path-A Snapshot View

India, Pakistan, and China began their development journeys at roughly the same time.

• India and Pakistan became independent nations in 1947.
• The People's Republic of China was established in 1949.

All three countries adopted similar initial strategies:

• They all used Five Year Plans to guide their development. India's first plan was for 1951-56, China's for 1953, and Pakistan's for 1956.
• Both India and Pakistan focused on creating a large public sector and increasing public spending on social development.

Until the 1980s, all three nations had similar growth rates and per capita incomes. However, their paths have diverged significantly since then.

China's Developmental Path

After its establishment, China brought all critical sectors of the economy, including land and enterprises, under government control.

Key Policies and Events:

• The Great Leap Forward (GLF): Launched in 1958, this campaign aimed for massive industrialisation. People were encouraged to set up small industries in their backyards. In rural areas, communes were established, where people collectively cultivated land.
  • Problems with GLF: The campaign faced major setbacks, including a severe drought that killed around 30 million people and the withdrawal of Russian professionals who were helping with industrialisation due to political conflicts.
• Great Proletarian Cultural Revolution (1966-76): Introduced by Mao, this movement sent students and professionals to the countryside to work and learn from the rural population.
• Economic Reforms of 1978: China's rapid industrial growth today is a result of the reforms initiated in 1978. These were introduced in phases:
  1. Initial Phase: Focused on agriculture, foreign trade, and investment. Commune lands were divided into small plots and allocated to individual households for use (not ownership). They could keep all income after paying taxes. This brought prosperity to many poor people and built support for further reforms.
  2. Later Phase: Focused on the industrial sector. Private firms and local collectives (Township and Village Enterprises) were allowed to produce goods. State-Owned Enterprises (SOEs) were made to face competition.
• Dual Pricing: The government fixed prices for a certain quantity of inputs and outputs for farmers and industries. Any amount beyond that could be bought and sold at market prices. This helped transition the economy smoothly.
• Special Economic Zones (SEZs): These were set up to attract foreign investors.

Pakistan's Developmental Path

Pakistan's economic policies have shown many similarities to India's. It follows a mixed economy model, with both public and private sectors.

Key Policies and Eras:

• 1950s-1960s: Pakistan adopted an import substitution strategy, protecting domestic consumer goods industries with high tariffs and import controls. The Green Revolution led to mechanisation and increased food grain production.
• 1970s: A period of nationalisation, where the government took control of capital goods industries.
• Late 1970s-1980s: The policy shifted towards denationalisation and encouraging the private sector. The economy was boosted by:
  • Financial support from Western nations.
  • Remittances from Pakistani workers in the Middle East.
  • Incentives for private investment.
• Economic Reforms of 1988: Formal reforms were initiated to further liberalise the economy.

Demographic Indicators

India and China together account for about one-third of the world's population. Pakistan's population is much smaller, about one-tenth of either India or China.

Comparative Demographics (2022 Data):

• Population Growth: Pakistan has the highest annual growth rate (1.89%), followed by India (0.68%). China's population growth is negative (-0.01%), largely due to its one-child norm introduced in the late 1970s.
• One-Child Norm Impact: This policy significantly slowed population growth but also led to a decline in the sex ratio (fewer females per 1000 males) and an aging population. This prompted China to later allow couples to have two children.
• Sex Ratio: The sex ratio is low and biased against females in all three countries, often attributed to a cultural "son preference."
• Density: Despite being the largest country geographically, China has the lowest population density.
• Fertility Rate: China has a very low fertility rate (1.2), while Pakistan's is very high (3.4).
• Urbanisation: China is highly urbanised (65%), followed by Pakistan (38%) and then India (36%).

Gross Domestic Product and Sectors

China's economic growth has been a major global story. It has the second-largest GDP (in PPP terms) in the world.

• GDP Comparison: India's GDP is about 42% of China's GDP, while Pakistan's GDP is roughly 10% of India's.

GDP Growth Rate Trends:

• 1980s: China experienced near double-digit growth (10.3%), while Pakistan (6.3%) was ahead of India (5.7%).
• Recent Years (2015-2022): China and Pakistan's growth rates have declined, while India's has seen a moderate increase. Political instability and the nature of its reform process are cited as reasons for Pakistan's declining growth.

Sectoral Contribution to Economy (2021 Data)

This refers to how much each sector (agriculture, industry, services) contributes to the economy (GVA) and how many people it employs.

Agriculture:

• Employment: Employs the largest share of the workforce in India (46%) and Pakistan (37%), but a smaller share in China (23%).
• Contribution to GVA: Despite high employment, agriculture's contribution to GVA is relatively low in India (19%) and Pakistan (24%), and very low in China (8%).

Industry:

• China: The industrial sector is a major driver of the economy, contributing 39% to GVA and employing 32% of the workforce.
• India & Pakistan: The industrial workforce is smaller (25% in both). In India, it contributes 29% to GVA, while in Pakistan it contributes 20%.

Services:

• This is the largest sector in terms of contribution to GVA in all three countries: India (52%), China (53%), and Pakistan (56%).
• It is also a major employer, especially in China (45%) and Pakistan (38%).

Indicators of Human Development

Human development indicators measure the well-being of a country's population beyond just economic growth.

Comparative Performance (2017-2019 Data):

• Overall: China is significantly ahead of both India and Pakistan on most indicators.
• Human Development Index (HDI): China's rank (75) is much higher than India's (134) and Pakistan's (164).
• Income: China's GNI per capita is substantially higher than India's and Pakistan's.
• Poverty: China has the smallest proportion of people living below the national poverty line.
• Health:
  • China has much lower infant and maternal mortality rates.
  • India and Pakistan struggle with high maternal mortality.
  • Access to basic sanitation is far better in China (94%) than in India (75%) or Pakistan (69%).
• Water: All three countries report providing improved drinking water sources to most of their populations.

Liberty Indicators: The text points out a limitation of standard human development indicators. They do not include 'liberty indicators', which measure things like:

• The extent of democratic participation.
• Constitutional protection for citizens' rights.
• Independence of the judiciary and the rule of law. Without these, the Human Development Index is considered incomplete.

Development Strategies - an Appraisal

Comparing the reform processes of the three countries offers important lessons. Reforms began in China (1978), Pakistan (1988), and India (1991).

Why China Succeeded

• Self-Initiated Reforms: Unlike India and Pakistan, which were compelled by the World Bank and IMF, China introduced reforms because its leadership was unhappy with the slow growth under Maoist policies.
• Strong Foundation: Before 1978, China had already invested heavily in education and health, established land reforms, and had a system of decentralised planning. This groundwork was crucial for the success of the post-reform economy.
• Phased Implementation: China tested each reform at a smaller level before applying it nationwide. This allowed them to assess costs and benefits without risking the entire economy. [!example] The agricultural reform of giving land plots to households was a massive success. It created rural prosperity and built strong public support for more reforms in other sectors.

Why Pakistan Struggled

• Worsening Indicators: Scholars argue that Pakistan's reform process led to a worsening of its economic indicators, with growth rates declining compared to the 1980s.
• Re-emergence of Poverty: After declining in the 1980s, poverty began to rise again in Pakistan.
• Reasons for Slowdown:
  • Volatile Agriculture: Economic growth was heavily dependent on good harvests rather than on institutionalised technological change.
  • Dependence on Remittances and Aid: A large part of its foreign exchange came from remittances from workers abroad and foreign loans, not from a sustainable manufacturing export base. This made the economy vulnerable.
  • Political Instability: Long periods of political instability have also hindered consistent economic growth.
• Recent Recovery: In the last few years, Pakistan's economy has shown signs of recovery, with GDP growth picking up.

Conclusion

After seven decades, India, China, and Pakistan have achieved varied results.

• India: As a democracy, it has performed moderately. A majority of its people still depend on agriculture, but it has taken significant steps to improve infrastructure and living standards.
• Pakistan: Its economy has been slowed by political instability, over-dependence on remittances and foreign aid, and a volatile agricultural sector. However, recent trends show signs of economic recovery.
• China: Despite concerns about the lack of political freedom and human rights, China has successfully used a "market system without losing political commitment." It has achieved high growth and significantly reduced poverty.