India, China growth story vital for others too: Report

The report focuses on the growth dynamics of China and India, as experts think they would have positive effects in many developed and developing economies. Though China is a manufacturing economy while India is a service-oriented one, both are important because of the sheer volumes involved.

‘‘Sustained rapid growth and rising living standards in India and China would be accompanied by a dramatic increase in Asia’s share of world exports and raw material consumption,’’ says the report. These countries’ rapid growth has been key to the recent surge in primary commodity prices. However, despite their strong income growth, China and India still had a long way to go to reach per capita income levels of the world’s leading economies. China’s per capita purchasing power in 2003 was around 10 per cent of that of the US. India’s is far lower.

Also, India’s merchandise trade structure might follow a sequence of changes similar to that of China with a lag of one or two decades.

The report uses parameters like level and composition of food consumption and intensity of metal and energy use to show where China and India are headed on the growth curve. On all fronts, China is way ahead.

A rise in per capita income from low levels is associated with an increase in per capita food production and a shift in composition of household expenditure away from primary products, specially food, towards manufactured items such as textiles and clothing.

By the end of 1990s, China’s average levels of daily per capita calorie intake fell only 10 per cent short of developed countries. Due to India’s relatively low level and growth rate of per capita income, growth in per capita demand for cereals has been much slower than in China over the past two decades. India’s average level of per capita calorie intake is 20 per cent below China’s. In short, India is in the first stage of nutrition transition. India is 5-20 years behind China in per capita use of commodities such as aluminium, copper and steel. This difference reflects the two country’s different pace of industrialisation and relatively small share of infrastructure investment in India’s GDP.

China’s energy use has steadily increased since the 1960s but at a slower rate than its GDP. The future energy use will depend on how it deals with both things— higher demand as well as scope for making energy more efficient. The report talks of global inter-dependence and says most earnings of developing countries from their exports to the developed countries are translated into higher import demand for advanced industrial products and thus flow back directly or indirectly to the latter.

UNCTAD’s potion for the “Asian magic’:

• India and China should thus use the temporary windfall profits coming from these higher prices to set up diversification and industrialisation.

• They should also cooperate in the formulation of generally agreed princiles on the fiscal treatment of foreign investors so that more export income remains at home.

• Further productivity gains and technological upgrading in manufacturing are needed in China and a shift towards manufacturing is crucial in India to sustain their economic performance.