Macroeconomic Policy, Inequality and Poverty Reduction in Fast-Growing India and China

It is now commonplace to regard China and India as the two economies in the developing world that are the ‘success stories’ of globalization, emerging as economic giants of the twenty-first century. The success is defined by the high and sustained rates of growth of aggregate and per capita national income; the absence of major financial crises that have characterized a number of other emerging markets; and substantial reductions in income poverty. These results in turn are viewed as the consequences of a combination of a ‘prudent’, yet extensive programme of global economic integration and domestic deregulation, as well as sound macroeconomic management. Consequently, the presumed success of these two countries has been used to argue the case for globalization and to indicate the potential benefits that other developing countries can reap, provided they also follow ‘sensible’ macroeconomic policies. The importance of these two countries also spills over into discussions of international inequality.1 This makes a comparison of the nature of macroeconomic policies in India and China, and the extent to which these have been ‘pro-poor’, of particular current relevance. In this chapter, we attempt such an examination, assessing growth performance and its impact on poverty and inequality, and also specifically addressing the question of how the macro policies have contributed to observed outcomes.