This is a question many people keep asking, discussing, debating. Therefore, the data must give us the exact picture. As things stand today, here is a comparison of Indian and Chinese economy in nominal terms as per world bank data at the end of 2018.
India's nominal GDP at the end of 2018 - 2.719 Trillion US$
China's nominal GDP at the end of 2018 - 13.608 Trillion US$
Therefore, China's GDP is approximately 5 times the size of the Indian GDP in nominal terms.
As things stand today, here is a comparison of Indian and Chinese economy in Purchasing Power Parity (PPP) terms as per world bank data at the end of 2018.
India's GDP (PPP) at the end of 2018 - 10.5 Trillion US$
China's GDP (PPP) at the end of 2018 - 25.399 Trillion US$
Therefore, China's GDP is approximately 2.42 times the size of the Indian GDP in PPP terms.
Having done the numbers part, let's now assess what explains the growth of the Chinese economy since 1980 when both countries were at equal footing in economic terms. How can the Chinese economy become 5 times the size of the Indian economy in a matter of about 40 years (from 1980 to 2018)?
People will give many reasons for the spectacular rise of the Chinese economy in comparison to the Indian economy. Reasons such as the one-party system in China, focus on exports, investment-led growth, focus on manufacturing, etc. All these are valid reasons for China's incredible rise.
People also give many reasons for the relatively subdued growth of the Indian economy. Reasons such as democracy, lack of reforms, focus on consumption, lackluster growth of the manufacturing sector in India. All these are valid reasons as well.
However, one factor that stands out among all these reasons is while China has become the world's factory, India has lagged behind. India could not develop it's manufacturing capabilities. Why?
India could not develop its manufacturing capabilities because of its dependent on top-down manufacturing (capital intensive manufacturing). In a top-down manufacturing approach, a large company (multi-national or domestic) sets up a base and starts manufacturing products after assessing the size and demand for those products. Once this company starts manufacturing, the ancillary units come up to supply different parts to this large manufacturing company. For example, Maruti started operations in Gurgaon and thereafter many ancillary manufacturing companies came up to supply different parts to Maruti. India has done well in this kind of manufacturing. However, this kind of manufacturing does not create the bulk of jobs. In fact, automation reduces the possibilities of the generation of jobs in this kind of manufacturing. Hi-tech machines and robots are deployed to produce and assemble finished products in this kind of manufacturing.
India did not focus on bottom-up manufacturing (labor-intensive manufacturing). And this is where the bulk of the jobs are created. Simple products such as electrical items, electronics, Lights, toys, plastic products, etc. are not produced in India. A large company won't produce these simple items. Only an entrepreneur or SME will produce these simple items. But SMEs or Indian entrepreneurs do not manufacture these products in India. Instead, they all go to China and flood Indian markets with Chinese goods. Why don't our entrepreneurs and SMEs make these simple products in India? What stops them from producing these simple goods in India? When we can develop our own capabilities in space research, then, why can't we develop our own capabilities in producing or manufacturing these simple products in India? Well, the answer lies in a lack of focus on bottom-up manufacturing.
Make in India program was launched with much gusto in 2014. However, Make in India also focused on top-down manufacturing. Make in India focused on attracting global manufacturers to start manufacturing in India. However, again, Make in India framework did not focus on bottom-up manufacturing. Or in other words, Make in India program did not pay attention to the needs of the local entrepreneurs or SMEs. Make in India program did not provide answers to questions such as 'Why are Indian entrepreneurs becoming traders and not manufacturers'? 'Why are Indian entrepreneurs or SMEs not manufacturing simple common household goods in India'? 'Why are Indian entrepreneurs bringing goods from China and selling in India'?
If 'Make in India' program had looked for answers to these questions, then, India's trade deficit with China would have reduced. Unfortunately, India's trade deficit with China is rising year after year and that is truly worrying.
By manufacturing the simple household goods in India itself, we would not only be generating millions of manufacturing jobs in India but would also be giving a boost to the GDP growth.
Focus on bottom-up manufacturing would result in narrowing the gap with the Chinese economy in the next decade or two.
Therefore, the answer to the question, 'Can Indian economy beat Chinese economy' is 'YES'. The Indian economy can compete and overtake the Chinese economy in the next 20 years or so provided India focuses on bottom-up manufacturing. Bottom-up manufacturing, wherein the bulk of the manufacturing jobs are created.
- Nominal GDP - World Bank Data:
India's nominal GDP at the end of 2018 - 2.719 Trillion US$
China's nominal GDP at the end of 2018 - 13.608 Trillion US$
Therefore, China's GDP is approximately 5 times the size of the Indian GDP in nominal terms.
As things stand today, here is a comparison of Indian and Chinese economy in Purchasing Power Parity (PPP) terms as per world bank data at the end of 2018.
- GDP in Purchasing Power Parity (PPP) - World Bank Data:
India's GDP (PPP) at the end of 2018 - 10.5 Trillion US$
China's GDP (PPP) at the end of 2018 - 25.399 Trillion US$
Therefore, China's GDP is approximately 2.42 times the size of the Indian GDP in PPP terms.
Having done the numbers part, let's now assess what explains the growth of the Chinese economy since 1980 when both countries were at equal footing in economic terms. How can the Chinese economy become 5 times the size of the Indian economy in a matter of about 40 years (from 1980 to 2018)?
People will give many reasons for the spectacular rise of the Chinese economy in comparison to the Indian economy. Reasons such as the one-party system in China, focus on exports, investment-led growth, focus on manufacturing, etc. All these are valid reasons for China's incredible rise.
People also give many reasons for the relatively subdued growth of the Indian economy. Reasons such as democracy, lack of reforms, focus on consumption, lackluster growth of the manufacturing sector in India. All these are valid reasons as well.
However, one factor that stands out among all these reasons is while China has become the world's factory, India has lagged behind. India could not develop it's manufacturing capabilities. Why?
India could not develop its manufacturing capabilities because of its dependent on top-down manufacturing (capital intensive manufacturing). In a top-down manufacturing approach, a large company (multi-national or domestic) sets up a base and starts manufacturing products after assessing the size and demand for those products. Once this company starts manufacturing, the ancillary units come up to supply different parts to this large manufacturing company. For example, Maruti started operations in Gurgaon and thereafter many ancillary manufacturing companies came up to supply different parts to Maruti. India has done well in this kind of manufacturing. However, this kind of manufacturing does not create the bulk of jobs. In fact, automation reduces the possibilities of the generation of jobs in this kind of manufacturing. Hi-tech machines and robots are deployed to produce and assemble finished products in this kind of manufacturing.
India did not focus on bottom-up manufacturing (labor-intensive manufacturing). And this is where the bulk of the jobs are created. Simple products such as electrical items, electronics, Lights, toys, plastic products, etc. are not produced in India. A large company won't produce these simple items. Only an entrepreneur or SME will produce these simple items. But SMEs or Indian entrepreneurs do not manufacture these products in India. Instead, they all go to China and flood Indian markets with Chinese goods. Why don't our entrepreneurs and SMEs make these simple products in India? What stops them from producing these simple goods in India? When we can develop our own capabilities in space research, then, why can't we develop our own capabilities in producing or manufacturing these simple products in India? Well, the answer lies in a lack of focus on bottom-up manufacturing.
Make in India program was launched with much gusto in 2014. However, Make in India also focused on top-down manufacturing. Make in India focused on attracting global manufacturers to start manufacturing in India. However, again, Make in India framework did not focus on bottom-up manufacturing. Or in other words, Make in India program did not pay attention to the needs of the local entrepreneurs or SMEs. Make in India program did not provide answers to questions such as 'Why are Indian entrepreneurs becoming traders and not manufacturers'? 'Why are Indian entrepreneurs or SMEs not manufacturing simple common household goods in India'? 'Why are Indian entrepreneurs bringing goods from China and selling in India'?
If 'Make in India' program had looked for answers to these questions, then, India's trade deficit with China would have reduced. Unfortunately, India's trade deficit with China is rising year after year and that is truly worrying.
By manufacturing the simple household goods in India itself, we would not only be generating millions of manufacturing jobs in India but would also be giving a boost to the GDP growth.
Focus on bottom-up manufacturing would result in narrowing the gap with the Chinese economy in the next decade or two.
Therefore, the answer to the question, 'Can Indian economy beat Chinese economy' is 'YES'. The Indian economy can compete and overtake the Chinese economy in the next 20 years or so provided India focuses on bottom-up manufacturing. Bottom-up manufacturing, wherein the bulk of the manufacturing jobs are created.
