UPSC Economics Planning and Economic Development NCERT Extracts - Comparative Development Experiences of India and its Neighbours

Introduction

• Geography has made us neighbours. History has made us friends. Economics has made us partners, and necessity has made us allies. Those whom God has so joined together, let no man put asunder. (John F. Kennedy)
• Over the last two decades or so, the economic transformation that is taking place in different countries across the world, partly because of the process of globalisation, has both short as well as long-term implications for each country, including India.
• Nations have been primarily trying to adopt various means which will strengthen their own domestic economies. To this effect, they are forming regional and global economic groupings such as the SAARC, European Union, ASEAN, G-8, G-20, BRICS etc.
• In addition, there is also an increasing eagerness on the parts of various nations to try and understand the developmental processes pursued by their neighbouring nations as it allows them to better comprehend their own strengths and weaknesses vis-a-vis their neighbours.
• In the unfolding process of globalisation, this is particularly considered essential by developing countries as they face competition not only from developed nations but also amongst themselves in the relatively limited economic space enjoyed by the developing world.
• Besides, an understanding of the other economies in our neighbourhood is also required as all major common economic activities in the region impinge on overall human development in a shared environment.

Developmental Path : A Snapshot View

• Do we know that India, Pakistan and China have many similarities in their developmental strategies? All the three nations have started towards their developmental path at the same time.
• While India and Pakistan became independent nations in 1947, People's Republic of China was established in 1949.
• All the three countries had started planning their development strategies in similar ways. While India announced its first Five Year Plan for 1951-56, Pakistan announced its first five year plan, now called the Medium Term Development Plan, in 1956. China announced its First Five Year Plan in 1953.
• In 2013, Pakistan began working on 11 th Five Year Development Plan (2013-18) whereas China's twelfth five year period is 2011-15. The current planning in India is based on Twelfth Five Year Plan (2012-17).
• India and Pakistan adopted similar strategies such as creating a large public sector and raising public expenditure on social development.
• Till the 1980s, all the three countries had similar growth rates and per capita incomes. Where do they stand today in comparison to one another?

China

• After the establishment of People's Republic of China under one party rule, all the critical sectors of the economy, enterprises and lands owned and operated by individuals were brought under government control.
• The Great Leap Forward (GLF) campaign initiated in 1958 aimed at industrializing the country on a massive scale. People were encouraged to set up industries in their backyards.
• In rural areas, communes were started. Under the Commune system, people collectively cultivated lands. In 1958, there were 26,000 communes covering almost all the farm population.
• GLF campaign met with many problems. A severe drought caused havoc in China killing about 30 million people.
• When Russia had conflicts with China, it withdrew its professionals who had earlier been sent to China to help in the industrialisation process.
• In 1965, Mao introduced the Great Proletarian Cultural Revolution (1966-76) under which students and professionals were sent to work and learn from the countryside.
• The present-day fast industrial growth in China can be traced back to the reforms introduced in 1978.
• China introduced reforms in phases. In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors.
• In agriculture, for instance, commune lands were divided into small plots which were allocated (for use not ownership) to individual households.
• They were allowed to keep all income from the land after paying stipulated taxes.
• In the later phase, reforms were initiated in the industrial sector. The reform process also involved dual pricing.
• This means fixing the prices in two ways; farmers and industrial units were required to buy and sell fixed quantities of inputs and outputs on the basis of prices fixed by the government and the rest were purchased and sold at market prices. In order to attract foreign investors, special economic zones were set up.

Pakistan

• While looking at various economic policies that Pakistan adopted, we will notice many similarities with India. Pakistan also follows the mixed economy model with co-existence of public and private sectors.
• In the late 1950s and 1960s, Pakistan introduced a variety of regulated policy framework for import substitution industrialisation.
• The policy combined tariff protection for manufacturing of consumer goods together with direct import controls on competing imports.
• The introduction of Green Revolution led to mechanisation and increase in public investment in infrastructure in select areas, which finally led to a rise in the production of foodgrains. This changed the agrarian structure dramatically.
• In the 1970s, nationalisation of capital goods industries took place. Pakistan then shifted its policy orientation in the late 1970s and 1980s when the major thrust areas were denationalisation and encouragement to private sector.
• During this period, Pakistan also received financial support from western nations and remittances from continuously increasing outflow of emigrants to the Middle-east.
• This helped the country in stimulating economic growth. The then government also offered incentives to the private sector. All this created a conducive climate for new investments. In 1988, reforms were initiated in the country.

Demographic Indicators

• Out of every six persons living in this world, one is an Indian and another Chinese. The population of Pakistan is very small and accounts for roughly about one-tenth of China or India.
• Though China is the largest nation and geographically occupies the largest area among the three nations, its density is the lowest.
• The population growth as being highest in Pakistan, followed by India and China. Scholars point out the one child norm introduced in China in the late 1970s as the major reason for low population growth.
• They also state that this measure led to a decline in the sex ratio, the proportion of females per 1,000 males.
• However, from the table, we will notice that the sex ratio is low and biased against females in all the three countries.
• Scholars cite son preference prevailing in all these countries as the reason. In recent times, all the three countries are adopting various measures to improve the situation.
• One-child norm and the resultant arrest in the growth of population also have other implications. For instance, after a few decades, in China, there will be more elderly people in proportion to young people.
• The fertility rate is also low in China and very high in Pakistan. Urbanisation is high in both Pakistan and China with India having 32 per cent of its people living in urban areas.

Table: Select Demographic Indicators, 2013

Source: World Development Indicators, www.worldbank org

Gross Domestic Product and Sectors

• One of the much-talked issues around the world about China is its growth of Gross Domestic Product. China has the second largest GDP (PPP) of $ 15.6 trillion whereas India's GDP (PPP) is $ 6.6 trillion and Pakistan's GDP is $ 0.83 trillion, roughly about 13 per cent of India's GDP
• When many developed countries were finding it difficult to maintain a growth rate of even 5 per cent, China was able to maintain near double-digit growth for more than two decades in the 1980s. Pakistan was ahead of India; China was having double-digit growth and India was at the bottom.
• In 2005-13, there is a marginal decline in India and China's growth rates whereas Pakistan met with drastic decline at 4.4 per cent. Some scholars hold the reform processes introduced in 1988 in Pakistan and political instability as reasons behind this trend.
• China and Pakistan have more proportion of urban people than India. In China, due to topographic and climatic conditions, the area suitable for cultivation is relatively small - only about 10 per cent of its total land area. The total cultivable area in China accounts for 40 per cent of the cultivable area in India.
• Until the 1980s, more than 80 per cent of the people in China were dependent on farming as their sole source of livelihood. Since then, the government encouraged people to leave their fields and pursue other activities such as handicrafts, commerce and transport.
• In 2013, with 30 per cent of its workforce engaged in agriculture, its contribution to GDP in China is 10 per cent.
• In both India and Pakistan, the contribution of agriculture to GDP were at 18 and 25 per cent, respectively, but the proportion of workforce that works in this sector is more in India. In Pakistan, about 44 per cent of people work in agriculture whereas in India it is 47 per cent.
• The sectoral share of output and employment also shows that in all the three economies, the industry and service sectors have less proportion of workforce but contribute more in terms of output.
• In China, manufacturing and service sectors contribute the highest to GDP at 44 and 46 per cent, respectively whereas in India and Pakistan, it is the service sector which contributes the highest by more than 50 per cent of GDP.
• In the normal course of development, countries first shift their employment and output from agriculture to manufacturing and then to services. This is what is happening in China. The proportion of workforce engaged in manufacturing in India and Pakistan were low at 25 and 14 per cent respectively.
• The contribution of industries to GDP is also just equal to or with a small difference in output from agriculture. In India and Pakistan, the shift is taking place directly to the service sector. Thus, in both India and Pakistan, the service sector is emerging as a major player of development.
• It contributes more to GDP and, at the same time, emerges as a prospective employer. If we look at the proportion of workforce in the 1980s, Pakistan was faster in shifting its workforce to service sector than India and China.
• In the 1980s, India, China and Pakistan employed 17, 12 and 27 per cent of its workforce in the service sector respectively. In 2013, it has reached the level of 28, 39 and 42 per cent, respectively.
• In the last two decades, the growth of agriculture sector, which employs the largest proportion of workforce in all the three countries, has declined.
• In the industrial sector, China has maintained a double-digit growth rate whereas for India and Pakistan growth rate has declined.
• In the case of service sector, China and India were able to raise its rate of growth during 1980-2013 while Pakistan stagnated with its service sector growth.
• Thus, China's growth is mainly contributed by the manufacturing sector and India's growth by service sector. During this period, Pakistan has shown deceleration in all the three sectors.

Table: Trends is Output Growth in Different Sectors, 1980-2013

Indicators of Human Development

• China is moving ahead of India and Pakistan. This is true for many indicators - income indicator such as GDP per capita, or proportion of population below poverty line or health indicators such as mortality rates, access to sanitation, literacy, life expectancy or malnourishment.
• Pakistan is ahead of India in reducing proportion of people below the poverty line and also its performance in education, sanitation and access to water is better than India.
• But neither of these two countries have been able to save women from maternal mortality. In China, for one lakh births, only 32 women die whereas in India and Pakistan, about 190 and 170 women die respectively.
• Surprisingly all the three countries report providing improved drinking water sources for most of its population.
• We will notice that for the proportion of people below the international poverty rate of $ 2 a day, India has the largest share of poor among the three countries.
• In dealing with or making judgements on such questions, however, we should also note a problem while using the human development indicators given above with conviction.
• This occurs because these are all extremely important indicators; but these are not sufficient. Along with these, we also need what may be called 'liberty indicators'.
• One such indicator has actually been added as a measure of 'the extent of democratic participation in social and political decision-making' but it has not been given any extra weight.                                                                               
• Some obvious 'liberty indicators' like measures of 'the extent of Constitutional protection given to rights of citizens' or 'the extent of constitutional protection of the Independence of the Judiciary and the Rule of Law' have not even been introduced so far.
• Without including these (and perhaps some more) and giving them overriding importance in the list, the construction of a human development index may be said to be incomplete and its usefulness limited.

Table: Some Selected Indicators of Human Development, 2012-13

Source: Human Development Report, 2014 and World Development Indicators (www.worlclbank.org)

Development Strategies : An Appraisal

• It is common to find developmental strategies of a country as a model to others for lessons and guidance for their own development. It is particularly evident after the introduction of the reform process in different parts of the world.
• In order to leam from economic performance of our neighbouring countries, it is necessary to have an understanding of the roots of their successes and failures.
• It is also necessary to distinguish between, and contrast, the different phases of their strategies. Though countries go through their development phases differently, let us take the initiation of reforms as a point of reference.
• We know that reforms were initiated in China in 1978, Pakistan in 1988 and India in 1991. Let us briefly assess their achievements and failures in pre-and post-reform periods.
• Why did China introduce structural reforms in 1978? China did not have any compulsion to introduce reforms as dictated by the World Bank and International Monetary Fund to India and Pakistan.
• The new leadership at that time in China was not happy with the slow pace of growth and lack of modernisation in the Chinese economy under the Maoist rule.
• They felt that Maoist vision of economic development based on decentralisation, self sufficiency and shunning of foreign technology, goods and capital had failed.
• Despite extensive land reforms, collectivisation, the Great Leap Forward and other initiatives, the per capita grain output in 1978 was the same as it was in the mid-1950s.
• It was found that establishment of infrastructure in the areas of education and health, land reforms, long existence of decentralised planning and existence of small enterprises had helped positively in improving the social and income indicators in the post reform period.
• Before the introduction of reforms, there had already been massive extension of basic health services in rural areas. Through the commune system, there was more equitable distribution of food grains.
• Experts also point out that each reform measure was first implemented at a smaller level and then extended on a massive scale. The experimentation under decentralised government enabled to assess the economic, social and political costs of success or failure.
• For instance, when reforms were made in agriculture, as pointed out earlier by handing over plots of land to individuals for cultivation, it brought prosperity to a vast number of poor people.
• It created conditions for the subsequent phenomenal growth in rural industries and built up a strong support base for more reforms. Scholars quote many such examples on how reform measures led to rapid growth in China.
• Scholars argue that in Pakistan the reform process led to worsening of all the economic indicators. We have seen in an earlier section that compared to 1980s, the growth rate of GDP and its sectoral constituents have fallen in the 1990s.
• Though the data on international poverty line for Pakistan is quite healthy, scholars using the official data of Pakistan indicate rising poverty there. The proportion of poor in 1960s was more than 40 per cent which declined to 25 per cent in 1980s and started rising again in 1990s.
• The reasons for the slow-down of growth and re-emergence of poverty in Pakistan's economy, as scholars put it, are agricultural growth and food supply situation were based not on an institutionalised process of technical change but on good harvest.
• When there was a good harvest, the economy was in good condition, when it was not, the economic indicators showed stagnation or negative trends.
• We will recall that India had to borrow from the IMF and World Bank to set right its balance of payments crisis; foreign exchange is an essential component for any country and it is important to know how it can be earned.
• If a country is able to build up its foreign exchange earnings by sustainable export of manufactured goods, it need not worry.
• In Pakistan most foreign exchange earnings came from remittances from Pakistani workers in the Middle-east and the exports of highly volatile agricultural products; there was also growing dependence on foreign loans on the one hand and increasing difficulty in paying back the loans on the other.
• As reported in the Pakistan Annual Plan for the year 2011-12, various factors contribute to slow growth of the Pakistan economy. To quote, "the economy is under stress as the floods, delays in implementation of economic reforms; dilapidated security situation and low foreign direct investment inflows are hampering growth in all major sectors. Massive floods took a heavy toll on agriculture and infrastructure while energy crisis coupled with steep decline in foreign direct investment is soaking up business activity during 2010-11. Pakistan's economy is provisionally expected to grow by 2.4 per cent during 2010-11 over previous year against the target of 4.5 per cent."
• Besides facing high rates of inflation and rapid privatisation, the government is increasing the expenditure on various areas that can reduce poverty.

Conclusion

• What are we learning from the developmental experiences of our neighbours? India, China and Pakistan have travelled more than five decades of developmental path with varied results. Till the late 1970s, all of them were maintaining the same level of low development. The last three decades have taken these countries to different levels.
• India, with democratic institutions, performed moderately, but a majority of its people still depend on agriculture. Infrastructure is lacking in many parts of the country. It is yet to raise the level of living of more than one-fourth of its population that lives below the poverty line.
• Scholars are of the opinion that political instability, over-dependence on remittances and foreign aid along with volatile performance of agriculture sector are the reasons for the slowdown of the Pakistan economy.
• Yot, in the recent past, it is hoping to improve the situation by maintaining high rates of GDP growth. It was also a great challenge for Pakistan to recover from the devastating earthquake in 2005, which took the lives of nearly 75,000 people and also resulted in enormous loss to property.
• In China, the lack of political freedom and its implications for human rights are major concerns; yet, in the last three decades, it used the 'market system without losing political commitment' and succeeded in raising the level of growth alongwith alleviation of poverty.
• We will also notice that unlike India and Pakistan, which are attempting to privatise their public sector enterprises, China has used the market mechanism to 'create additional social and economic opportunities'.
• By retaining collective ownership of land and allowing individuals to cultivate lands, China has ensured social security in rural areas. Public intervention in providing social infrastructure even prior to reforms has brought about positive results in human development indicators in China.