Growth of Working Age Population May Present India with an Opportunity to Close the Gap with China

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If you are looking for economies of significant growth in the global economy over the last ten years, you can't do better than looking east to India and China.  While both economies have had strong runs since introducing economic reform (China first, then India about a decade later), China separated itself from the pack, and from India, with export growth.  Ganeshan Wignaraja, Principal Economist at the Asian Development Bank’s Office of Regional Economic Integration, illustrates the export growth for India and China in a recent post at Vox:

Wignaraja expects India to begin closing the gap--though he is not willing to argue that India is in position to catch up with China:

While India’s working age population is expected to grow by an astonishing 136 million over the next 10 years, China will add a relatively modest 23 million new workers. India’s huge increase in the working-age population is perhaps a mixed blessing. India’s literacy rate of 63%, compared with a rate of 93% in China, suggests that the country may face an imbalance of low-skilled and high-skilled workers just as the knowledge sector of its economy is poised for continued rapid expansion. As Table 2 shows, China allocates significantly more resources than India to infrastructure and R&D, both key determinants of future trade and growth. Estimates by McKinsey, a consulting firm, suggest that just to keep pace with its rapidly growing urban population India will need to spend $1.2 trillion on urban infrastructure over the next 20 years, or eight times its current rate of spending.

Both Asian giants have a solid foundation for continued rapid economic growth. Growth in both countries will be driven by exports comprising increasing amounts of medium- and high-tech manufactures, as well as services. India has made great strides in reforms in recent years. Yet China’s economic policies, investment climate, and supply-side conditions remain more favourable than India’s. Accordingly, China’s trade will likely continue growing more rapidly than India’s in the decade ahead.

India has scope for closing the gap in trade performance with China by enhancing supply-side measures, such as investing in infrastructure, boosting literacy and skill creation, and fostering industrial R&D. Continuing with economic reforms and regionalism in both giants can also help sustain trade performance.

Read Will India overtake China in the next decade? here.


Posted 10-03-2011 8:56 AM by Graham Griffith
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