[Indian Economic Development] Chapter 8: Comparative Development Experiences of India and Its Neighbours

Comparative Development Experiences of India and Its Neighbours

To understand India's development trajectory better, economists compare it with neighbouring countries — particularly China and Pakistan, as all three gained independence around the same time and faced similar initial conditions.

• India gained independence from Britain in 1947. Adopted democratic governance and a mixed economy with Five Year Plans.
• Pakistan gained independence from Britain in 1947. Initially had a similar economic structure; pursued military-influenced governance through much of its history.
• China became the People's Republic of China in 1949 under the Communist Party. Followed central planning, then implemented market reforms from 1978.

• All three countries had:
• Predominantly agrarian economies
• Large rural populations with poverty
• Low per capita incomes
• Limited industrial base
• Low life expectancy and high infant mortality

• India:
• Democratic socialism; Five Year Plans; focus on PSUs and heavy industry
• Gradual economic reforms post-1991 (LPG)
• Free markets within a regulated framework

• China:
• Great Leap Forward (1958-62) — mass collectivisation and rapid industrialisation (failed catastrophically, causing widespread famine)
• Cultural Revolution (1966-76) — political turmoil, economic disruption
• Four Modernisations from 1978 — Deng Xiaoping's market-oriented reforms (called "Socialism with Chinese Characteristics")
• Special Economic Zones (SEZs) — export processing zones attracting FDI from 1979
• Rapid industrialisation, massive infrastructure investment

• Pakistan:
• Mixed economy; large role for public sector initially
• 1960s: high growth under Ayub Khan era with US aid
• Recurring political instability and military coups disrupted long-term planning
• Dependence on remittances and foreign aid
• Terror-related instability from 2000s hindered investment

| Indicator | India | China | Pakistan |
|---|---|---|---|
| GDP Growth (avg 2000s) | 6-7% | 9-10% | 4-5% |
| HDI Rank (2022) | ~132 | ~79 | ~164 |
| Life Expectancy (2022) | ~69 years | ~78 years | ~67 years |
| Literacy Rate | ~74% | ~97% | ~57% |
| Poverty Rate | Declining fast | Mostly eliminated | ~40% |
| Per Capita GDP (PPP, 2022 approx) | ~USD 7,000 | ~USD 18,000 | ~USD 5,000 |

1. 1.SEZs — attracted massive FDI; Shenzhen grew from a fishing village to a megacity in 30 years
2. 2.Export-led growth — became the "world's factory" by manufacturing at competitive prices
3. 3.Massive infrastructure investment — roads, ports, railways built at scale
4. 4.One-child policy — reduced population growth, raised savings rate
5. 5.Central planning efficiency — authoritarian governance allowed rapid large-scale decisions without political delays

• Rising income inequality (urban vs. rural, coastal vs. interior)
• Environmental degradation (air/water pollution)
• Ageing population from one-child policy
• Lack of political freedoms
• Trade tensions with US and global partners
• Debt-driven growth in recent years

• Political instability — multiple military coups disrupted long-term planning
• Dependence on foreign aid (especially US military aid)
• Low tax-to-GDP ratio (~11%) limiting public investment capacity
• High military spending diverting resources from education and health
• Weak export base — limited to textiles, no diversification
• Terrorism and security problems discouraging investment

Example 1: China vs. India — 1980 to 2023 Growth
In 1980, China and India had similar per capita GDPs (roughly USD 200-300). By 2023, China's per capita GDP was approximately USD 12,500 (nominal) vs. India's USD 2,500. China's 30-year average GDP growth of 9-10% compounded transformatively. At 7% growth, income doubles every 10 years; at 9-10%, it doubles every 7-8 years.

Example 2: China's SEZ — Shenzhen
Shenzhen was a small fishing village of about 30,000 people in 1979 when it was designated China's first SEZ. By 2020, Shenzhen was a city of 17 million people, headquarters of companies like Huawei, Tencent, and DJI, with a GDP larger than many small countries. This transformation in 40 years is the world's most dramatic urbanisation and industrialisation story.

Example 3: Pakistan's Fiscal Challenge
Pakistan spends approximately 4% of GDP on defence but only about 2-2.5% on education. India spends about 2.5% on defence and about 3-4% on education. China spends roughly 4% on education and 1.7% on defence. This allocation difference partly explains Pakistan's low literacy (57%) vs India (74%) and China (97%).

Example 4: India's Demographic Dividend Opportunity
China's one-child policy (1980-2015) succeeded in slowing population growth but created an ageing workforce. India, with 50% of its population below 25 years, has the world's largest "youth bulge." If India can skill and employ this workforce productively, it could achieve a demographic dividend — a sustained boost to growth from a high proportion of working-age people — that China is now losing.

Example 5: One-Child Policy Trade-Offs
China's one-child policy reduced fertility from about 5.9 children per woman (1960) to 1.5 (2020). This raised savings per household and accelerated development. But by 2025, China faces a rapidly ageing population with fewer workers supporting more retirees. India's more natural demographic transition has been slower but more sustainable.

Example 6: Comparison of Human Development — Pakistan vs. India
Pakistan and India were at similar literacy levels at independence (~18-20%). By 2020, India's literacy was 74%, Pakistan's 57%. India invested more systematically in primary education (through the Sarva Shiksha Abhiyan and Right to Education Act). Pakistan's lower investment in education, especially for girls, has resulted in significantly lower human capital formation.

Example 7: India's Service-Sector-Led Growth vs. China's Manufacturing-Led Growth
China became the world's manufacturer; India became a global software and services hub. China's manufacturing-led model created massive factory employment for low-skilled workers — lifting hundreds of millions from poverty. India's IT/services model created high-quality jobs for the educated few. For broad-based poverty reduction, manufacturing jobs are more inclusive — which is why India is now trying to boost manufacturing through schemes like PLI (Production Linked Incentives).