Economic Performance Comparison Between India and China | 20 Oct 2020

Why in News

According to the September 2020 Centre for Monitoring Indian Economy (CMIE) data, economic recovery after the lockdown has thrown up some paradoxes for India. However, China has recorded growth for the consecutive third quarter (July-September 2020).

  • CMIE is a leading business information company. It was established in 1976, primarily as an independent think tank.

Key Points

  • Employment:
    • The CMIE data shows that there is a revival in employment amid a fall in labour force participation. The labour force participation rate (LFPR) is defined as the percentage of persons in the labour force (i.e. working or seeking or available for work) in the population.
      • However, usually when more people find jobs a greater number should have come in looking for jobs.
      • The unusual trend can be explained by a rural-urban disaggregation of the data. Rural India is seeing an increase in jobs due to post harvest activity whereas employment in urban India is decreasing.
      • Also, better quality and higher paying jobs in urban areas are being lost and substituted by lower-paid rural jobs.
      • This phenomenon points to the fact that a reversal of migration back to the cities is not happening to the extent that it should have.
  • Inflation:
    • The supply side shock due to lockdown has led to an increase in headline inflation mainly driven by increase in food prices.
      • Headline inflation is a measure of the total inflation within an economy, including commodities such as food and energy prices.
    • However, the unexpected trend is the rise in core inflation i.e. non-food, non fuel inflation, that too during a period when growth is set to register a record contraction.
      • Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors.
    • Ideally, the collapse in demand due to lockdown should have triggered a drop in core inflation.
  • Consumer Confidence:
    • Another unexpected development is evident in the Reserve Bank of India’s (RBI)’s latest consumer confidence survey.
      • The central bank’s ‘current situation index’ fell to an all-time low in September, 2020 even as its ‘forward-looking surveys’ show that consumer confidence for the year 2020-21 has improved.
        • Current situation index is a sub index that measures overall consumer sentiment regarding the present economic situation.
      • So even as the current situation of households has been progressively worsening, the survey points to households reporting better prospects for the future.
  • Growth:
    • According to the recent IMF’s World Economic Outlook (WEO) report, Indian economy is going to be the worst affected among the comparative countries like China, U.S.A., Pakistan and Brazil.
    • India is not only going to be worst-affected in the short term but also in the medium term.
    • The IMF has also doubled the rate of Gross Domestic Production (GDP) contraction for India. However, globally the growth has become better.
  • China’s Economic Performance:
    • China’s economic growth continued to gain momentum in the third quarter, with the GDP expanding 4.9% from a year earlier in the July-September, 2020 period.
    • China is witnessing an increase in tourism; growth in industrial production and exports that has generated revenue and jobs for millions Chinese people. However, Consumption is yet to regain its normal vigour in China.
    • The International Monetary Fund (IMF) has forecasted that China’s economy will expand by 1.9 % in 2020, making it the only major economy to register growth in a pandemic-hit year.
    • The economic rebound follows China’s broad return to normalcy in early months of 2020, following sweeping Covid-19 curbs including stringent lockdowns, extensive contact tracing, and restrictions on international travel through the first half of the year.

Source: IE