The Hindu Business Line : China and India — Musings on recent economic history

The Chinese model of development has stood it in good stead, with agriculture first getting transformed and growing rapidly, creating the funds and manpower surpluses for fuelling industrial growth, notably in the small and medium industrial sector. If India wants to clock similar rapid overall growth, its agriculture must grow rapidly and form the basis for a strong industry sector grounded in the rural and semi-urban areas, with the right market connectivity, says Bhanoji Rao.

THE latest World Economic Outlook database of the IMF provides a capsule summary of some of the world's fastest-growing economies (see Chart). The last 25 years of growth performance indicates the absolute superiority of the Dragon. The good news for the Elephant, however, is that it has joined the fast-movers club.

An issue of considerable purport is how China has done what it has done and what, if any, are the main lessons to the only other equally populous economy, India. This is not the first article on the subject, and comparative analyses of economic growth will continue for long to engage professionals and policy-makers.

To begin with, China's reforms were launched in the agricultural sector. They replaced the original Maoist collectivist culture and its variants, with family-operated farms becoming a part of the `household responsibility system' introduced by the Deng Xiao Ping regime. Its aim was building the structure of enterprise on the foundations of egalitarianism.

The issue was not about access to land; it was simply how to make better use of what one has access to. The unleashing of private initiative in farming resulted in the phenomenal growth of agricultural output from less than 3 per cent in the earlier years to more than 7 per cent in the early 1980s.

Subsequent deceleration, however, resulted in an average growth rate of 4.8 per cent for the post-1980 period, in contrast to the average of 2.9 per cent in India.

The birth of reform in India was in the external sector. It was easy, since it meant mostly dismantling trade barriers. During the 1950s and 1960s, import substitution was the main strategy, and import controls were severe. The late 1970s saw the first moves towards import liberalisation, primarily to encourage exports that needed capital and intermediate goods.

For instance, in 1987-88, of the total intermediate and capital goods imports, only 12 per cent remained in the restricted category. The situation changed dramatically since 1991 and, today, we have hardly any problem in importing consumer goods also.

Our reforms in the external sector are important; one must not find fault with them. Yet, it remains that they by themselves have not done much to raise the purchasing power in the rural areas, the backbone of the economy, with a tremendous impact on the overall growth rate.

The rural poor in India continue to be around 30 per cent of the population as against less than 5 per cent in China. One need not be a marketing guru to see the link between Chinese agricultural expansion and the overall market expansion for all sorts of non-agricultural goods and services. All this happened in a country with less arable land than that of India.

China has 933 million hectares of total land, a little over three times of the Indian land area of 297 million ha. Yet, the Chinese are constrained by an arable land area of 124 million ha, which is three quarters of the Indian endowment of 162 million ha. Put differently, China's arable land is just about 13 per cent of its total land, in contrast to the much better 54 per cent in the case of India.

Despite this natural bounty, India is lagging behind China in two aspects. First, the extent of irrigated land (around 55 million ha) is about the same in both countries, despite the difference in the extent of arable land. As a result, the irrigated to arable land proportion is 44 per cent in China, against 34 per cent in India.

Second, Chinese farmers apply relatively higher amounts of fertiliser on their farms. According to the data available from the World Bank, for 2000/01, fertiliser use in China was an average of 279 kg per ha as against 103 kg per ha in India. The Chinese case is like the textbook model of development, with agriculture first getting transformed and growing rapidly, creating the funds and manpower surpluses for fuelling industrial growth, notably in the small and medium industrial sector.

Thus, of the total employment of around 730 million people in 2000, the percentage employed in agriculture was 47 per cent, down from 60 per cent a decade ago.

Development economists give special consideration for the `turning point' when the proportion employed in agriculture falls below 50 per cent, indicating the transformation from a dominant and all-important agricultural sector to an important but not dominant sector.

In the case of India, the proportion employed in agriculture was 63 per cent in 1983 and 57 per cent in 2000. While it did achieve foodgrain surpluses, probably at great cost, India is yet to see the Chinese-style high rates of rural savings and their use in small and medium industry, and the transfer of surplus manpower from agriculture to those sectors, based in villages and small towns.

In addition to the agricultural pre-condition for rapid overall growth, the Chinese took one other major initiative: Building infrastructure ahead of need. Those who have driven along the main roads of Beijing in the late 1980s would recall how empty those wide streets were, while the side paths for cycles were always full.

Infrastructure is roads and railroads first and then all else. Otherwise, they would have had no link between the small industry town or village and the ports and airports.

The China-India differential in the average growth rate of agriculture (4.8 per cent versus 2.9 per cent) is like a mirror image of the differential in the overall growth rate of GDP (9.5 per cent versus 5.6).

One should be forgiven for the temptation to draw an inference valid for long periods of time and for China and India that an x per cent growth in agriculture would give a 2x per cent growth in the overall economy.

The message is loud and clear. Indian agriculture must grow rapidly and that must be the basis for the evolution of a strong small and medium industry sector grounded in the rural and semi-urban areas. If our roads and railways too were to cooperate, we should see sustained 4-5 per cent growth in agriculture and 8-10 per cent growth overall.

Finally, a word of caution is warranted on the quality of data. Experts think that the Chinese statistics overestimate the rate of economic growth. It may not be as high as 9.5 per cent average for 1980-2004, but less perhaps by 2-3 percentage points. How good are the Indian data? An independent evaluation of the Indian national accounts statistics would be welcome.

(The author, formerly with the National University of Singapore and the World Bank, is Professor Emeritus, GITAM Institute of Foreign Trade, Visakhapatnam. He can be reached at bhanoji@gmail.com)

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