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Why India Lags Behind China and How It Can Bridge the Gap


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  • Arvind Panagariya


Though India has been growing at six per cent annually since the late 1980s, it trails behind China, which has been growing at ten per cent per annum since 1981. The single most important factor explaining this difference is the relatively poor performance of Indian industry. Whereas the share of industry in China's GDP rose from 42 per cent in 1991 to 51 per cent in 2001, it remained virtually stagnant in India. By contrast, services grew rapidly in India, expanding from 42 per cent in 1991 to 48 per cent in 2001. With the information technology sector less than two per cent of the GDP, services growth was largely in the informal sector. Approximately 77 per cent of India's workers live in rural areas. To bring a large chunk of this workforce into the modern sector, India must achieve a much higher growth in the traditional, unskilled-labour-intensive industry. Growth in the information technology sector gives India an extra lever but cannot be the main engine of transformation. Therefore, the right approach is to walk on two legs: traditional labour-intensive industry and the modern IT industry. Both legs need strengthening through further reforms. The paper suggests four specific reforms, three for industry and one for IT, necessary to achieve the transformation to a modern economy. Copyright 2007 The Author Journal compilation 2007 Blackwell Publishing Ltd .

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 30 (2007)
Issue (Month): 2 (02)
Pages: 229-248

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Handle: RePEc:bla:worlde:v:30:y:2007:i:2:p:229-248

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  1. Deepening India’s export basket
    by Keya Chaturvedi in East Asia Forum on 2014-05-17 00:00:12
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Cited by:
  1. Shishir Saxena, 2007. "Technology And Spillovers: Evidence From Indian Manufacturing Micro-Data," Development Research Unit Working Paper Series, Monash University, Department of Economics 27-07, Monash University, Department of Economics.
  2. Kan, Kamhon & Wang, Yong, 2013. "Comparing China and India: A factor accumulation perspective," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 879-894.


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