India and China’s economies
India and China are among the oldest economies before civilization and posted immense wealth and wisdom in the eighteenth century. However, for the last two centuries, India and China have suffered an economic decline in per capita income and a steady rise in population. However, the two countries have recorded different economic trajectories in the last century, leading to other histories. For instance, China enjoys stable and large-scale financial stability due to long-lasting peace and lack of single authority. On the other hand, India has the world’s largest parliamentary democracy, which scales back to the state-run industries and slow economic growth. On the contrary, China is a one-party authoritarian state that creates a pseudo-free market command and rapid economic growth. Similarly, China desired unity after the dividing force of nationalism in the 20th century, while in India, there never existed an authority that had ruled over all of India. This paper will discuss different economic systems used by India and China in regional development and the hypothesis.
In China, immediately after the communist party took over in 1949, it declared China a democratic republic, sparking failed industrialization campaigns. Mao Zedong, who was in charge, instilled a leap-forward strategy, which forced peasants to work in steel backyards. Between 1958 to 1960, the plan led to the death of 45 million Chinese due to famine and hunger. However, in 1998 the country, through the help of Deng, opened up to foreign investment and began domestic liberation, which strengthened private businesses (Ghatak & Sen, 2020). By 2006, China’s gross domestic product eclipsed due to the contribution from the private sector (Chen et al., 2017). Since then, China has seen a steady economic ascent but still lacks politically due to a one-party dictatorship. Thus, the Chinese development trajectory is neither communist nor capitalist, as described by Karl Marx and Adam Smith, because it is people-driven, making it a hybrid system.
The Hypothesis of Global Integration
India’s growth has been modest compared to the Chinese because of its functional parliamentary democratic system. Since 1990, India has pursued traditional Western economic reforms that transformed the Indian economy into the third-largest economy in the world. After gaining independence in 1947, India’s economy faced numerous challenges due to Prime Minister Jawal Nehru’s socialist economic policy, which was inefficient (Ghatak & Sen, 2020). In 1991, the Indian economy collapsed, forcing her to borrow an emergency loan from International Monetary Funds to float its poor currency to increase its export competitiveness. India’s economy improved in 1991 after Rao pushed for the privatization of non-performing state industries, which opened the country to international investors (Chen et al., 2017). Unlike China, India did not use forced labor but rather weakened the economic bottleneck, which curtailed the entry of foreign investors, privatized state companies, and reduced the fiscal deficit. The political and economic differences appeared much more significant in 2003 compared to the past because the two economies went through economic phases to break even.
The Hypothesis of Purchasing Power Parity theory (PPP)
The PPP hypothesis assumes that the exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the comparable countries. This hypothesis is dependent on the equality of the price level of the fixed basket of goods and services and the value of the basket of goods and services across the countries. The PPP exchange rates are lower in India than in China and lower compared to Western countries such as Switzerland (Ghatak & Sen, 2020). Furthermore, the PPP estimates are the previous findings released by institutions of economic corporations and development (Chen et al., 2017). Therefore, the hypothesis of PPP indicates that a country must have a standard level of exchange of goods and services that are used to calculate the Gross Domestic Product and the economic difference between two countries.
The Hypothesis of the Exchange Rate
The hypothesis behind China’s slow growth from the 60s to the 80s is due to political democracy, populism, subsidies, and a lack of resources through the public infrastructure. The economic constraints blocked the economic transition from low-income and poor trapped growth (Ghatak & Sen, 2020). The hypothesis suggests a positive relationship between subsidies and economic development, income per capita, and a negative relationship between economic growth and an increase in allowances (Chen et al., 2017). The Indian hypothesis suggests that the low-growth regime is due to democracy that led to populism and subsidies. India’s economy will grow further due to privatization and the investment constraints that occurred in the 1990s. Market rate exchange theories are appropriate for an economy’s immediate weight over the PPP, whereas the latter should be taken as the future exchange rate or an indicator.
India and China have numerous differences that scale from political to economic and strategic models. The latter has the world’s largest parliamentary democracy, which raises back state-run industries. China is a one-party authoritarian state that creates a pseudo-free market command. For instance, the Chinese development trajectory is neither communist nor capitalist, as described by Karl Marx and Adam Smith, because it is people-driven, making it a hybrid system. On the contrary, India and China’s political and economic differences appeared much more remarkable in 2003 compared to the past because the two economies went through economic phases and applied different strategies. India’s economy will grow further due to privatization and the investment constraints that occurred in the 1990s. Thus, there are striking similarities in India’s and China’s model of recovery post economic decline, but they have unique differences due to their different political structures.
Chen, A., Liu, G., & Zhang, K. (2017). Urban transformation in China (1st ed.). Routledge.
Ghatak, M., & Sen, R. (2020). Growth and the subsidy Raj in India. Class and Conflict, 67-93. Web.