India, China and Globalization

India, China and Globalization

Also by Piya Mahtaney THE ECONOMIC CON GAME: Development Fact or Fiction? GLOBALIZATION: Con Game or Reality? THE CONTEMPORARY RELEVANCE OF KANTILYA S ARTHASHASTRA (co-author) This book is dedicated to my mother Kunti for her unstinted support

India, China and Globalization The Emerging Superpowers and the Future of Economic Development Piya Mahtaney

Piya Mahtaney 2007 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted her right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-35272-2 ISBN 978-0-230-59154-7 (ebook) DOI 10.1057/9780230591547 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Mahtaney, Piya. India, China and globalization : the emerging superpowers and the future of economic development / by Piya Mahtaney. p. cm. Includes bibliographical references. 1. India Economic policy. 2. India Foreign economic relations. 3. China Economic policy. 4. China Foreign economic relations. 5. Globalisation Economic aspects. I. Title. HC435.3.M346 2007 338.951 dc22 2007021655 10 9 8 7 6 5 4 3 2 1 16 15 14 13 12 11 10 09 08 07

Contents List of Tables, Figures and Boxes ix 1 The New Age Paradox 1 The new age paradox: inevitability and implications 1 The way ahead 8 PART I The Rising Superpowers: Issues, Implications and the Future Introduction to Part I 14 2 India s Story: As it Rolls On 17 3 India: Her Tryst with Globalization 18 The turning point 18 Role of FDI in the Indian economy 24 Liberalization and the dynamics of economic progress 27 4 Economic Reform: Moving Beyond Liberalization 30 Sustainable growth and economic reform 31 The political economy of underdevelopment: its ramifications 32 Infrastructure provision and human capital formation: a story of unaffordable paucity 34 Privatization: an overview of its impact in India 41 Conclusion 48 Appendix 50 5 India: Unleashing Opportunity Creation 51 Introduction 51 Growth creation and slackened employment growth in the Indian economy: an analysis 53 The impact of liberalization on the manufacturing sector in India: trends in productivity, output expansion and employment creation 56 Conclusion 61 v

vi Contents 6 A Multisectoral Pattern of Economic Growth: Important Issues 63 The skill development paradigm 69 7 India s Economic Ascent: Insights and Issues 72 8 China: The Emerging Superpower 82 9 China: Its Ascent as an Economic Powerhouse 83 Economic liberalization 86 Conclusion 94 Appendix 95 10 State-owned Enterprise Restructuring in China: Issues and Challenges 97 The impact of enterprise restructuring 100 The impact of financial-sector reform in China: issues and concerns 108 Conclusion 114 Appendix 115 11 Economic Reform in China: The Ensuing Phase 116 The underpinnings of China s present growth patterns: sustainability issues and imperatives 118 Poverty reduction in China 122 Conclusion 130 12 Human Capital Formation: Trends, Implications and Future Prospects in China 131 Health care reform in China: was it an instrument of inequity? 132 The link between human capital formation and technological advancement 134 Conclusion 138 Appendix 139 13 China s Foreign Direct Investment Story: An Evaluation 141 China s accession to the WTO 141 Broad trends in foreign investment 144 Broad trends in China s trade 146 Evaluating China s FDI export model 147 Protectionism: its impact on technological upgrading 151 The trickle-down effect of technology transfer 154 Conclusion 158 14 China s Economic Experience: Insights, Lessons and a Perspective 159 Reinventing neo-liberalism 160

Contents vii Economic transformation and turnaround: beyond structural adjustment 165 Conclusion 168 Appendix: fundamental lessons, in a nutshell 169 15 When Elephants Walk and Dragons Dance: A Comparison between the Indian and Chinese Economies 170 An overview of recent history: India and China 172 Liberalization: the initial stage 173 Liberalization: India and China s variant 178 Present reform imperatives in India and China: a comparison 182 Conclusion 185 PART II Globalization: A Process of Incomplete Economic Integration Introduction to Part II 190 16 Globalization: Vision and Reality 191 Economic history: lessons in restrospect 192 Globalization and economic integration: the dichotomy 197 Financial and trade liberalization: an overview of its impact 197 Trade liberalization: is it about free or fettered trade? 201 Conclusion 204 Appendix 205 17 Revisiting the East Asian Miracle 209 Analysis 211 Comparisons: East Asia and Africa 220 Conclusion 227 18 The Stilettoization of Economic Progress 231 The political economy of underdevelopment: a macroview 232 Economic integration: altering its partial approach 241 Conclusion 244 PART III Bridging the Gap between Growth and Development: Evolving a Paradigm Introduction to Part III 248 19 The Production Function of Development 249 The nature of economic growth 249

viii Contents 20 The Development Paradigm: Its Evolution and Importance 256 Evolution of the development paradigm 256 The curative: a transition from resource mobilization to resource management 269 Singapore: exemplifying EEM 271 Reform: it cannot cease 272 Appendix 276 Bibliography 277 Index 289

List of Tables, Figures and Boxes Tables 1.1 Growth in GDP (%) 4 1.2 Population living below the poverty line 6 I.1 Rising significance of China and India in the global economy 16 3.1 Basic trends in growth rates (%) 20 3.2 Sectoral real GDP growth rates (%) at factor cost (at 1999 2000 prices) 21 3.3 Economic growth rates in Indian states, 1980 2004 28 4.1 Trends in public expenditure and infant mortality in South Asian countries 38 4.2 Privatizations with strategic partners in India, 1999 2005 42 4.3 Savings and Investment in the Indian economy (%) 46 4.4 Gross domestic saving and investment 47 5.1 Trend growth rate in employment (%) 56 5.2 Total factor productivity growth in Indian manufacturing 57 6.1 Annual growth rate in agriculture and GDP 66 9.1 China s economic growth rates (1990 2001) (%) 85 9.2 China s GDP growth (2002 6) (%) 86 10.1 Estimated real unemployment figures in China s urban areas (million) 104 10.2 Employment in terms of ownership pattern (%) 106 10.3 Non-performing loan ratios of the Big Four 111 12.1 National R&D statistics 135 12.2 R&D as a percentage of GDP by country 136 12.3 National Science and technology personnel, 1991 99 (in millions) 137 13.1 Share of foreign direct investment in total fixed investment (%) 144 13.2 China: increasing trade/gdp ratio 146 13.3 Top five US imports from China (in billions and % change) 149 13.4 Top five US exports to China (in billions and % change) 149 13.5 China s top five trading partners during 2004 (in billions) 150 15.1 Enrolment ratio (%) in China and India (2002 3) 177 ix

x List of Tables and Figures 15.2 Contribution of consumption, investment and trade to GDP growth in China and India (%) 181 17.1 Exports to the world from East Asia (US$ billions) 212 17.2 Economic growth rates in East and South-East Asia (per cent) 214 17.3 Ratio of foreign direct inflows to gross fixed capital (%) 215 17.4 Average annual GDP growth in Africa 1965 99 220 18.1 The story of income divergence annual average compound growth rates of per capita GDP % 233 18.2 Decomposition of international inequality by region (2000) 236 Figures 6.1 A diagrammatic depiction of the skill development paradigm 70 17.1 External financing includes in its ambit overseas development assistance, various forms of aid and foreign investment 222 20.1 The development paradigm 265 Boxes 1.1 Scorecard on development: some facts 2 1.2 Emerging economic powers 10 5.1 Broad trends in the manufacturing sector 58 9.1 China s market: its potential some indicators 84 9.2 Cities and regions with SEZ status 90 10.1 Easing the controls on the private sector 107 11.1 Increasing income and non-income inequality in China 129 16A.1 Excerpts from the WTO Ministerial Declaration (2004) 206 17.1 Industrial Policy: choice of sectors 217 18.1 Trends in inequality 237