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U r sure India wont beat Chian in Future?Read this
Extract from http://www.usindiafriendship.net/viewpoints1/debroy.htm|
And also an answer for those who brag about th FDI
The upshot is that the Chinese population will age faster than what one had earlier assumed. Instead of the aging factor hitting China beyond 2035, it will begin to hit beyond 2015. By 2015, 32 per cent of China’s population will be over 50, while 31 per cent of India’s population will be under 15. This has direct implications for the growth prospects of the two countries. A simple framework for predicting growth is to divide the investment rate by the capital/output ratio, the latter also a measure of efficiency of capital usage. The investment rate is a function of the domestic savings rate and foreign savings.
China’s investment rate has been almost 45 per cent and the capital/output ratio around 5, thus explaining 9 per cent GDP growth. Until recently, India’s investment rate was around 26 per cent and the capital/output ratio around 4, thus explaining 6.5 per cent GDP growth. Capital is more efficiently used in India, understandably so, because money hasn’t usually been ploughed into massive infrastructure projects. Compared to India, China is a capital abundant country, which explains why returns on capital are lower in China than in India, a fact foreign investors have also discovered.
To get back to the growth point, the domestic savings rate in China is around 45 per cent, compared to the historical trend in India of around 25 per cent. However, what people often ignore is that the household savings rate in India (at around 18 or 19 per cent) is higher than that in China. Unlike south-east Asian countries like Singapore, there is no mandatory component to household savings in China. Privatized recourse to education and healthcare, and the breakdown of traditional social security nets, have driven savings behaviour in China, spliced with young populations and greater prosperity. As the Chinese population ages, the household savings component will decline. And so will the corporate component, as reforms increasingly require state-owned enterprises to pay dividends. While savings and investment rates decline in China, they will increase in India. Indeed, the Indian savings rate has already increased to 29 per cent, driven by higher incomes and demographic transition. The Indian investment rate has also gone up to 30 per cent, with a still relatively small component of foreign savings. No one should regard a current account deficit/GDP ratio of 3 per cent as unsustainable. So, we should witness an increase in the Indian savings rate to 32 per cent and an increase in the investment rate to 35 per cent.