India and China are two most populous and growing economy not only in Asia, but in the world also. In 2016, the population of China was 137.87 crores and that of India was 132.42 crores (World Bank, 2018). China is one of the biggest economies of the world with nominal GDP $12.014 trillion in 2017, and economic growth rate being 6.9% in 2017, on the other hand, India’s GDP is quite low, only $2.6 trillion in 2017 with a growth rate of 6.74% (IMF.org, 2018).
Figure 1: GDP Comparison between China and India, 1986-2016
(Source: World Bank, 2018)
Over the past 30 years, the Chinese economy has grown in an extremely rapid pace, as seen from the above diagram. With the huge growth of population, the Chinese economy focused on utilizing the labor force into developing the manufacturing sector alongside the agricultural sector. The private firms in China were more efficient than the public firms and they had invested in expanding the manufacturing sector by utilizing the cheap labor. On the other hand, India has also seen a huge population growth during this period. However, India kept its focus on maintaining an agricultural economy while China shifted its focus on becoming an industrial economy along with maintaining the agricultural growth (Sengupta & Puri, 2016). The cost and wages were competitive in India but there was also a lack of larger scale opportunities for utilizing the cheap labor. Hence, the level of production was lower than in China. The labor market restrictions were higher in India. Huge population growth also helped in maintaining the domestic demand in China which contributed in the GDP growth (Quer, Claver & Rienda, 2017). During this time, India was dependent primarily on the agricultural sector and followed by service sector and the level of trade was also lower due to high level of restrictions. Thus, huge population growth was not much helpful for increasing the level of production in the country compared to China.
Imf.org. (2018). Report for Selected Countries and Subjects. Retrieved from https://www.imf.org/external/pubs/ft/weo/2018/01/weodata/weorept.aspxpr.x=35&pr.y=12&sy=2017&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=924&s=NGDPD%2CPPPGDP%2CNGDPDPC%2CPPPPC&grp=0&a=#cs1
Quer, D., Claver, E., & Rienda, L. (2017). Cultural distance, political risk and location decisions of emerging-market multinationals: a comparison between Chinese and Indian firms. Journal of the Asia Pacific Economy, 22(4), 587-603.
Sengupta, P., & Puri, R. (2018). Exploration of Relationship between FDI and GDP: A Comparison between India and Its Neighbouring Countries. Global Business Review, 0972150918760026.
World Bank. (2018). Population, Total. Retrieved from https://data.worldbank.org/indicator/SP.POP.TOTL