The Economic Race Between India and China is Heating Up

April 12, 2016

Written by Myn
Edited by HV

China and India have long been in a race of economic growth since the late 1940s when India gained independence, adopted democracy and China became a Communist state. But until 2013, it was no longer a competition when China’s GDP was 4.5 times larger than that of India. Or so we thought.

In January 2016,  India took China’s crown as the world’s fastest-growing economy when the World Bank released the economic growth forecasts for India and China. India’s number is 7.8%, and China’s is 6.7%. However, the question remains. Can India really outgrow China?

China’s GDP in 2015 was $10.42 trillion, and India’s was $2.18 trillion, according to the Global Times. Since India was a decade behind China in development, the matter lies in how fast it could grow to shorten the gap. India’s government has launched many initiatives such as Make in India project to support the economy, which boosted the FDI in India to $3 billion in January 2016.

India also has a strong labor force forecasted to grow to 900 million in 2020 while China’s labor is shrinking. Since economic growth depends on capital goods and labor, India will have an edge over China if it equips the labor force with necessary skills. 


On the other hand, India is still facing many challenges that can break the country’s goal to surpass China. India government still needs to build more infrastructure, boost education quality to increase labor skills training and find solutions to its water security problem. The ongoing droughts are big obstacles on Prime Minister Narenda Modi’s path to meet the inflation target because of the compensation for farmers and failing crops. Meanwhile, China’s CPI in March remained unchanged at 2.3%, so the China’s central bank does not have to worry about inflation signals yet.

The latest challenge to India’s growth is the weakest deposit growth rate since 1963. It conflicts with the government’s plan to bring down the borrowing cost to boost investment and reduce bad debts. The reasons for this slowdown were the decrease in job creation, alternative investment options and the “black money” tax evading authorities.