India’s growth gap with China narrowing

I have been posting a series comparing the economic performance of BJP and Congress governments. As part of this, I compared India’s GDP growth rates since economic liberalization began in 1991 to other comparable countries including China. China has consistently grown faster than India for decades now. Starting at a similar per-capita income level as India in the 1970s, China grew its economy rapidly to become almost three times as rich as India. The growth gap with China has been a consistent feature of the economy under both BJP and Congress governments. It is however informative to analyze the trend in this growth gap over time.

The chart below shows the difference in percentage points between the growth rates of the two countries: China’s year-over-year growth rate in GDP at purchasing power parity, minus India’s rate for the same period.

india-china-yoy-gap

This means that in 1991, China’s growth rate exceeded India’s by 7.3 percentage points; in other words, India grew at GDP at PPP at 5.8% while China grew it at 13%. (The difference is 7.3%, not 7.2% because of a rounding anomaly). I have color-coded the chart for various governments in India since liberalization began: red is Congress/UPA, green is NDA and blue is third parties.

Overall, it looks like India has steadily narrowed the gap in GDP growth with China. Looking at the data for each year can make it hard to spot long-term trends, so I computed averages for each government. The chart below shows the simple average of the gap in year-over-year GDP growth rate at purchasing power parity with China.

india-china-average-gap-by-pm

As you can see, the average gap has been closing steadily. We still have a large 2-3 percentage point gap that we need to close. If you split apart the two UPA terms under Singh, the average gap under UPA-1 is 2.7% and the average gap under UPA-2 is 2.2%.

This analysis is interesting because it normalizes for global economic conditions, while surfacing specific factors that affect one or both countries. In the wake of the global financial crisis, while growth in India has slowed, it has slowed a wee bit less than in China.

 

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