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Growth, Reforms and Inequality: Comparing India and China

Growth, Reforms and Inequality: Comparing India and China. Lopamudra Banerjee (New School, New York), Ashwini Deshpande (Delhi School of Economics), Yan Ming (Chinese Academy of Social Sciences, Beijing), Sanjay Ruparelia (New School, New York),

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Growth, Reforms and Inequality: Comparing India and China

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  1. Growth, Reforms and Inequality: Comparing India and China Lopamudra Banerjee (New School, New York), Ashwini Deshpande (Delhi School of Economics), Yan Ming (Chinese Academy of Social Sciences, Beijing), Sanjay Ruparelia (New School, New York), Vamsicharan Vakulabharanam (University of Hyderabad), Wei Zhong (Chinese Academy of Social Sciences, Beijing).

  2. Our estimates for India • Based on three NSS large surveys: 1987-88, 1993-94 and 2004-05. • Variable used: monthly per capita expenditure (MPCE). Routinely used as a proxy for income, since income figures are unreliable. • Overall trend is of rising inequality (Gini), more in the second period (93-94 to 04-05: 0.33 to 0.36)

  3. Results contd…. • India: rural: mild decrease in the first period (0.3 to 0.29), mild increase in the second period to 0.3: overall more or less unchanged. • The aggregate Gini masks underlying changes. • China: sharper rise over a shorter period (upto 2002) 0.29 to 0.38. • Urban: India: 0.35 to 0.34 to 0.38 • China: 0.30 to 0.33 • Urban inequality in China is lower than rural.

  4. Explanations…… • The agrarian sector in India has seen a deceleration in the rate of growth -> stagnation. • Slower rate of growth than total GDP: increase in inequality • Population in agriculture: 60% • Share of agriculture in GDP: 15% • High r.o.g. in sectors which have not created enough employment (e.g. IT sector); bulk of increase in employment in informal sector.

  5. Explanations…. • Bulk of the Indian growth story is investment and export driven. • Consumption has kept pace with overall growth. • However, growth in consumption is driven by the demands of the upper middle class and the rich: owners, managers, professionals: growth of luxury consumption. Investment is responding to this demand.

  6. Explanations….. • Inter-state variations: federalism argument: liberalisation from above  “vertical competition” (between states for resources from the centre) replaced by “horizontal competition” (for private investment and FDI): “provincial Darwinism” : not all states are able to compete successfully. States like Bihar, Jharkhand, Tripura and Sikkim have negative real MPCE growth. • Consumption of the urban middle classes: elite consensus on creating world class urban spaces that celebrate the culture of capitalism.

  7. Decomposition of Inequality

  8. China

  9. China: Rural versus urban

  10. Decomposition by R-U

  11. Decomposition by Regions

  12. China • At the macro level, proportion of consumption in GDP is declining. • Reason: share of wage income is declining, compared to the share of profit income. • Urban-rural divide increases: TOT worsen • Rural-urban migration was expected to reduce gaps but migrants concentrated at the lower end of the urban labor market, so gaps do not lower. • Social exclusion related to labour market segregation: hukou prevents economic and social mobility

  13. China • Employment growth in China has been in formal sector (as compared to India), but has mainly been at the lower end. • Regional differentiation: strongly related to the “open door policy” adopted since the early 1990s. Marked increase in coastal- inland inequality. • Role of the state: introducing market-oriented reforms –> initial increase in inequality; since 1990s: inequalities due to power: access to power; abuse of power: corruption; state monopolies. • Low wage jobs: state preventing the emergence of collective bargaining.

  14. Social differentiation in China • Private entrepreneurs: new and expanding group: contributes a significant proportion to GDP, provides employment. • The poor: especially new urban poor, floating population: low wages, lack of access to subsidized public service and face social discrimination. • Changing social composition of the power structure of the political regime: increasing political influence of the rich.

  15. Comparisons • Absolute levels and growth rates of income and consumption in China much higher. • Story of rising inequality in the post-reform period in both countries: rise in China much sharper than in India over a comparable period. • Rural –urban gaps in China sharper. • Rural-Urban decompositions: the “between” component in China is much higher. • Decomposition by region: “between” component in China higher than in India.

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