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

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  • Arvind Panagariya

Abstract

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 .

Suggested Citation

  • Arvind Panagariya, 2007. "Why India Lags Behind China and How It Can Bridge the Gap," The World Economy, Wiley Blackwell, vol. 30(2), pages 229-248, February.
  • Handle: RePEc:bla:worlde:v:30:y:2007:i:2:p:229-248
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    References listed on IDEAS

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    1. Eswar S Prasad, 2004. "China's Growth and Integration into the World Economy; Prospects and Challenges," IMF Occasional Papers 232, International Monetary Fund.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Deepening India’s export basket
      by Keya Chaturvedi in East Asia Forum on 2014-05-17 05:00:12

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    Cited by:

    1. Chatterji, Monojit & Choudhury, Homagni, 2010. "Growth Rate Estimation in the presence of Unit Roots," SIRE Discussion Papers 2010-92, Scottish Institute for Research in Economics (SIRE).
    2. C. Veeramani & Prachi Gupta, 2014. "Extensive and Intensive Margins of India's Exports: Comparison with China," Working Papers id:5808, eSocialSciences.
    3. Chatterji, Monojit & Choudhury, Homagni, 2010. "The Changing Inter-Industry Wage Structure of the Organised Manufacturing Sector in India, 1973-74 to 2003-04," SIRE Discussion Papers 2010-89, Scottish Institute for Research in Economics (SIRE).
    4. Kan, Kamhon & Wang, Yong, 2013. "Comparing China and India: A factor accumulation perspective," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 879-894.
    5. C. Veeramani & Lakshmi A & Prachi Gupta, 2017. "Intensive and extensive margins of exports: What can India learn from China?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-002, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Shishir Saxena, 2011. "Technology and spillovers: evidence from Indian manufacturing microdata," Applied Economics, Taylor & Francis Journals, vol. 43(10), pages 1271-1287.
    7. Ghani,Syed Ejaz & Grover,Arti & Kerr,Sari & Kerr,William Robert, 2016. "Will market competition trump gender discrimination in India ?," Policy Research Working Paper Series 7814, The World Bank.
    8. Kunal Sen, 2009. "International Trade and Manufacturing Employment: Is India following the Footsteps of Asia or Africa?," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 765-777, November.

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