Comparison of India and China’s Growth Models

India’s growth model is quite distinct from other rapidly growing Asian economies. India has a growth model that is quite distinct from the Investment-export-oriented strategy adopted by China. Here are a few points for comparison.

• While China has derived a predominant part of its growth from the external sources both in terms of foreign investments and export markets, India’s growth has mostly come from its internal sources. India’s net exports to GDP ratio has been significantly lower than that of China.
• India has a large trade deficit, yet, India has managed to grow at reasonably high rates. The role that services exports, principally software exports, have played in maintaining an external sector balance for India and in sustaining high GDP growth rates as well is evident from the surplus in the invisibles account.
• The domestic savings investment gap in India has been kept at low levels and India has managed to finance a predominant part of its capital formation from domestic savings. Unlike China, India has not generated excessive savings. Till recent rise in CAD, India had a comparatively small current account deficit, a modest level of foreign exchange reserves and limited inflow of foreign capital. The foreign investments in India were hardly a fraction of the investments made in China, but small investments gave India ample insurance against external shocks.

Further, India’s economic growth has been a services-led growth. The post-1991 high GDP growth has largely been attributed to the spectacular performance of the services sector, especially the software and IT-enabled services sector, in India.