"China and India: Macro Economic Prospects and Problems "

Abstract

This paper draws on "China and India: Macroeconomic prospects and problems." China and India had similar development strategies prior to their breaking out of their deliberate insulation from the world economy and the ushering in of market-oriented economic reforms and liberalization. China began reforming its closed, centrally planned, non-market economy in 1978. India always had a large private sector and functioning markets, which were subject to rigid, state control until the hesitant and piecemeal reforms of the 1980s. These became systemic and far broader after India experienced a severe macroeconomic crisis in 1991. The political environment under which reforms were initiated and implemented in the two countries and their consequences were very different. India continues to be an open, participatory, multiparty democracy, while China has an authoritarian, one party regime, though it is liberalizing policies. China and India have a lot to gain, both from trading with each other and cooperating in the WTO. Each can learn from the other's policies, their successes and failures. This paper discusses a subset of economic issues common to both countries without touching on others, such as privatization of SOEs, reforms of the labour market (e.g., dealing with the "hokou" system in China and labour laws in India), financial sector reforms and, above all, political reforms. Although it may sound chauvinistic and naive, there is no doubt that China can learn a lot from the functioning of a vibrant, but somewhat chaotic, multiparty participatory democracy in India. After all, as the Chinese become richer and economically free, they are likely to demand personal and political freedoms. Hopefully, the Communist Party of China will anticipate and accommodate such demands, as it seems to have started doing already.