Saturday, November 11, 2006

Time for the champagne

I kept reading about the booming Indian economy doing very well, so I decided to check out some of the data:
  • World Bank measures of economic size (2005 data):
    • GDP in US dollars: India ranks 12th, with a GDP of $785 billion. The US tops the list, with a GDP of $12.5 trillion. China is 4th, with a GDP of $2.2 trillion.
    • GNP in US dollars: India ranks 10th with $ 793 billion, China is 4th with $2.6 trillion and the US is 1st with $13 trillion.
  • Per capita PPP GDP:
    • US: $43,000
    • China: $6615
    • India: $3473
(The populations are, roughly, China: 1.3 billion, India 1.1 billion and the US 300 million).
  • In PPP terms, the pie in India is large, but unfortunately so is the population. Even if we make the totally unreal assumption that everyone gets an equal share of the pie, the slice is very very small. If we look at the size of the 2005 pie slice relative to other countries, we find that India ranks 144th and China is 107th. The US is 3rd.
  • Of course, income distribution is extremely unequal in both India and China, so poverty is widespread. Rural-urban disparities are huge. However, China is doing much better than India on a variety of fronts, both in terms of infrastructure as well as in terms of basic human development. This article provides the details.
In India, people revel in the media hype about growth rates and celebrate how economic reforms undertaken in 1991 (or liberalization/globalization) have worked wonders. As this paper points out, a look at the data makes it apparent that the high growth period started at least a decade earlier. This makes India's growth period roughly coincident with China's. China is already far ahead of India and pulling away even further.

One more indicator of China's rapidly increasing economic power is the astounding level of its foreign exchange reserves. These are now close to the $1 trillion mark, growing at about $20 billion a month. India's forex reserves are at a mere $167 billion.

I have an analogy for the Indian frame of mind. Imagine you are running a 100 m race. When you reach the 10 m mark, you turn around, look back, and say: "Look at how wonderful I am! I have come so far from the starting line!" Most of the other runners are beyond the 60 m mark. The only other runner comparable to you is at the 40 m mark and gathering speed. You pat yourself on the shoulder and start looking for the champagne.


Blogger MManoj said...

I agree that it is far too early to pop the champagne cork and India may be doomed to forever play catch-up with China. However, I would take the "79.9% below $2" statistic with a pinch of salt. I have seen news reports exulting in India having reached 100 million mobile phone users.(even 125). That is far more than the 12 in 1000 quoted in the "Will India Catch-up" article you linked to. If you have a mobile phone you and probably two or more family members close to you are living on more than $2 a day. If you grow your own vegetables but have no-earned income, you are "World-Bank" poor. But are your really poorer than a welfare-mom with nine children and a drug problem? (oops - I let that slip out :-) )

11/14/2006 1:27 PM  
Blogger VP said...


The article notes that the source of the phone data is a report from 2004-2005. Since then, India's cell phone usage growth has been phenomenal.
Recent numbers
seem to peg the number of mobile users in India at about 130 million. This is about 12% of the population. The comparable number for China is roughly 33%.

I don't think the "79.9% below $2" statistic is suspicious. At the very least, your reasoning does not force one to that conclusion: at $2 per day, the annual income comes to Rs. 32,000. Mobile phones are offered at Rs. 1000 for a lifetime of free incoming calls. For many low income people (sabziwalas in Mumbai, fishermen in Kerala), the mobile phone is rapidly becoming a tool of the trade.

The dig at the poor welfare-mom is more suited to a certain talk-radio windbag who somewhat resembles a blimp. Since the much ballyhooed Clinton-era reforms, there are no more welfare-moms, only destitute women and poor children.

11/15/2006 12:30 AM  
Blogger MManoj said...

I agree that a majority (perhaps 65%) of Indian's live on under $2 a day. Not to split hairs over this, but this article
dated July 2005 talks of the middle class being between 200-250 million. I have seen more recent ones putting the number well over 300 million.

11/15/2006 12:53 PM  
Anonymous Shunya said...

A few bones to pick:

a) On income distribution, India fares much better than China, US, UK, and most Latin American and African countries (Europeans score the best here). A commonly used measure of economic disparity is the Gini index. Here is a World Bank study that rates countries by their internal economic disparity. A Gini index below 30 is considered laudable (lower the better). India scores 32.5, US 40.8, China 44.7.

b) The celebratory mood of Indians (esp. the urban middleclass and the media) is easier to understand given where India was in 1991 with its economic potential and foreign exchange reserves (0$ to $167 billion is hardly mere). The average urban middleclass Indian cannot be expected to modulate his response based on Chinese economic stats that he does not have and which are irrelevant to his life. In his mind, progress has been made, and that is a cause of some celebration (and champagne).

c) It is true that Chinese planning in macroeconomics, social services, and infrastructure has been better than in India, but no comparison between the two should ignore the very real political freedoms that are available to Indians and not to the Chinese. Of course, it is possible that most Indians might prefer better health care and education than the right to criticize their government, but this difference between the two polities is notable to say the least.

11/21/2006 8:08 PM  

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