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1. India and China: An Essay in Comparative Political Economy

India and China are two of the oldest and still extant civilizations. For Europeans, they were legendary seats of immense wealth and wisdom right up to the eighteenth century. Somewhere between the mid-eighteenth century and early nineteenth centuries, both of these countries became, in the European eyes, bywords for stagnant, archaic, and weak nations. For China, this happened between the adulation of Voltaire and the cooler judgment of Montesquieu; in India’s case, it was the contrast between Sir William Jones’s desire to learn things Indian and James Mill’s dismissal of Indian history as nothing but darkness.
Meghnad Desai

2. India’s Growth Experience

Perceptions of India’s economic growth are shifting. In the first three decades after independence in 1947, the economy was known for its steady “Hindu” rate of growth of 3.5 percent. It is now apparent that India moved onto a higher growth trajectory in the 1980s, and that this underlying momentum lasted through the 1990s, notwithstanding some deceleration at the end of the decade. As many other fast-growing economies succumbed to financial crisis in the 1980s and the 1990s, the steadiness of India’s growth performance began to attract greater attention abroad, as did India’s reform program launched in 1991. In the eyes of many observers, by the end of the 1990s India had moved to being a “six percent growth” economy—not a “miracle” perhaps, but certainly respectable. This steady growth has produced predictable consequences. Sales of 10,000 motorcycles a day and more than one million new mobile phone subscriptions each month are some reflections of this momentum (Waldman (2003)). After fierce academic debate, there is also consensus that significant progress has been made in poverty reduction, but without a significant change in the personal distribution of income.2

3. China’s Economic Growth and Poverty Reduction (1978–2002)

This chapter summarizes and evaluates trends of China’s poverty reduction in the period 1978–2002. China has obtained great achievements in poverty reduction since 1978 and made a major contribution to world poverty reduction. However, poverty reduction in China has not always come with economic growth, and its pace has slowed since the mid-1980s. In addition, some new forms of poverty have arisen.
Hu Angang, Hu Linlin, Chang Zhixiao

4. Reform Strategies in the Indian Financial Sector

Financial sector reforms in India in the 1990s have undeniably advanced the objectives of significantly opening the constituent segments to competition and liberalized operations. India now has a world-class equity markets infrastructure; measures are steadily being implemented to build up liquid debt markets; and banks are moving toward, even if they remain some way off, international prudential norms.

5. Financial System Reform and Economic Development in China

This chapter reviews the role of China’s financial sector in its economic development, and the challenges that lie ahead. It comes at a time when the world economy is apparently in a stage of readjustment and recovery, with the current key focus now to work toward long-term sustainable economic growth. I speak cautiously regarding this assessment of recovery, because many challenges lie ahead. In the first half of 2003 alone, the global economy suffered from a number of negative economic shocks, including the Iraqi war, rapidly rising oil prices, and the SARS epidemic. Adding to the economic malaise in 2003 were the imponderables of geopolitical risks, the volatility of major currencies and stock markets, and continuous deflation in some Asian countries. Given such potential crises and risks on the economic horizon, it is prudent and even extremely important to enhance the early warning and response capabilities of the international financial systems. In particular, developing countries, China among them, must deepen their economic systems and strengthen their institutions if they are to promote long-term growth that will weather such global challenges and shocks.
Chen Yuan

6. Bank Financing in India

The Indian banking sector has been remarkably successful in some respects. Its immense size and enormous penetration in rural areas are exemplary among developing countries, as is its solid reputation for stability among depositors. The penetration in rural areas has been associated with a reduction of poverty and a diversification out of agriculture.2 However, in recent years, it has been widely viewed as being both expensive and inept. In particular, it has been argued that most banks are overstaffed, that a large fraction of their assets are nonperforming, and that they under lend, in the sense of not putting enough effort into their primary task of financing industry.3 A wide range of remedies have been suggested ranging from strengthening the legal system to punish defaulters, to abolishing the targeted lending programs (so-called priority sector rules), to privatization of the entire banking system.

7. Trade Liberalization and Its Role in Chinese Economic Growth

In terms of their participation in the international economy it would be difficult to envision two more contrasting cases than China and India. Whether the base line is the time of independence for India (1947) or the founding of the People’s Republic of China (1949), the beginning of Chinese economic reforms in the late 1970s or the initiation of Indian economic reforms in 1991, China’s trade performance has been distinctly superior. Even after a decade of economic reform, India’s share of global trade in 2000 was only 0.7 percent, two-thirds less than in 1948.2 By contrast, as shown in Table 7.1, China’s share of global trade by 2002 more than tripled in the past half century and is currently six times that of India.3 Most of the increase in China’s share of global trade has occurred in the 25 years since reform and opening began in 1978.
Nicholas R. Lardy

8. India in the 1980s and the 1990s: A Triumph of Reforms

While public opinion in India continues to move toward the view that liberalization has been good, that more of it is needed, and that its pace must be accelerated, the view in some scholarly and policy circles has turned skeptical. It is being argued that the average annual growth rate of gross domestic product (GDP) hit the 5.6 percent mark in the 1980s, well before the launch of the July 1991 reforms. Moreover, the growth rate in the 1990s was not much higher. Therefore, liberalization cannot be credited with having made a significant difference to growth in India.2

9. Effects of Financial Globalization on Developing Countries: Some Empirical Evidence

The recent wave of financial globalization since the mid-1980s has been marked by a surge in capital flows among industrial countries and, more notably, between industrial and developing countries. While these capital flows have been associated with high growth rates in some developing countries, a number of countries have experienced periodic collapse in growth rates and significant financial crises over the same period, crises that have exacted a serious toll in terms of macroeconomic and social costs. As a result, an intense debate has emerged in both academic and policy circles on the effects of financial integration for developing economies. But much of the debate has been based on only casual and limited empirical evidence.
Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei, M. Ayhan Kose

10. Understanding India’s Services Revolution

A striking feature of India’s growth performance over the past decade has been the strength of the services sector. Table 10.1 shows that on average services grew more slowly than industry between 1951 and 1990.2 Growth of services picked up in the 1980s and further accelerated in the 1990s, when it averaged 7.5 percent per annum, thus providing a valuable prop to industry and agriculture, which grew on average by 5.8 percent and 3.1 percent, respectively.3 Most forecasters expect that services will grow at similar if not higher rates over the next few years. Growth in the services sector has also been less cyclical and more stable than the growth of industry and agriculture (in the sense of having the smallest coefficient of variation).

11. Capital Account Controls and Liberalization: Lessons for India and China

The extensive literature on capital controls and capital account liberalization in emerging market economies generally identifies two types of capital controls: first, targeted measures aimed at slowing the pace of short-term portfolio inflows and outflows; and second, pervasive restrictions on a broader range of external capital transactions.2
Jonathan Anderson

12. Capital Account Liberalization: The Indian Experience

When India and China successfully withstood the contagion from the East Asian crisis in 1997, the relatively restrictive capital account regime of these two countries was generally highlighted as the savior. Unlike the pre-crisis period when capital controls were generally viewed as a taboo, policy thinking in the post-crisis period has changed dramatically, with several emerging market economies slowing down the pace and content of liberalization of capital controls with a view to limiting their vulnerability to crisis. The benefits and costs of an open capital account appear more ambiguous today than what many researchers and policymakers had believed in the pre-crisis period. In this context, the approach to capital account liberalization as adopted by India and China has become an important subject of international policy discussions.
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