Whose Economy is Better India or China?

28 January 2010 One Comment

China has completed surpassed India in the recent comparisons economists and businessmen make between Asia’s two rising giants. Studies showed that the Chinese government policies of implements new strategies with blinking speed is making India’s fractured political system appear sluggish and chaotic.

The sagging infrastructure of New Delhi and Mumbai stands nowhere when compared with shining airports and wide roads of Beijing.

Though India still can’t compete on top-line economic growth — the World Bank projects India’s gross domestic product (GDP) will increase 6.4% in calendar 2009, far short of the 8.7% rate China announced in mid-January – India’s economy looks to be rebounding from the downturn in better shape than China’s. India doesn’t appear to be facing the same degree of potential dangers and downside risks as China, which means policymakers in New Delhi might have a much easier task maintaining the economy’s momentum than their Chinese counterparts. “The way I see it is that the growth in India is much more sustainable” than in China, says Jim Walker, economist at Hong Kong-based research firm Asianomics.

India’s edge is due to the different stimulus programs adopted by the two countries to support growth during the downturn. China implemented what Walker calls “the biggest stimulus program in global history.” On top of government outlays for new infrastructure and tax breaks, Beijing most significantly counted on massive credit growth to spur on the economy. The amount of new loans made in 2009 nearly doubled from the year before to $1.4 trillion – representing almost 30% of GDP. The stimulus plan worked wonders, holding up growth even as China’s exports dropped by 16% in 2009.

The Indian economy is not immune to risks. The government has to contend with a yawning budget deficit, and last year’s weak monsoon rains will likely undercut agricultural production and soften rural consumer spending. But rapid growth is expected to continue. The World Bank forecasts India’s economy will surge 7.6% in calendar 2010 and 8% in 2011, not far behind the 9% rate it predicts for China for each of those years. Indian Prime Minister Manmohan Singh, when speaking about his country’s more plodding pace of economic policymaking, has said that “slow and steady will win the race.” The Great Recession appears to have proved him right.