India & China : race against or race with?

This is my second blurb on the same topic after last post on GDP comparison; hopefully we will find something different this time. Having compared the GDP as a whole, let's look at the breakdown of GDP of both countries. The figures below show that china's GDP growth engine is different than that of India. While China shows tremendous growth at the Industry sector, India's growth hero is services sector. China's industrial production saw so much rise that it is seen as the one of largest exporter in Asia today. Compared to that India's growth is propelled by internal consumption [IT services contribute merely 5-6% to India's GDP]. North American companies are the first to recognize this pattern and take advantage thereof. How? In this decade, many of the large North American equipment manufacturers have moved their manufacturing base from US to China [beside Malayasia] and equal number of them moved their Backoffice processing service to India. In short, it is amply clear that US is seeing India and China complementing each other here.

Now let's look at China and India's export scenario. Here we have a graph of relative size of bilateral trade between two countries. India's export to China has been lower-value component like mineral ores, cotton yarn and fabrics whereas China's export to India is more oriented towards finished goods, like electronic machineries, toys, etc. China is taking advantage of its mass-scale production capacity. Evidently the trade-deficit is huge from India [presently it stands at $4 billion]. Something needs to be done and both the govts are aware and working towards it as stated  by Nirupama Rao during her last diplomatic visit to China. India needs to find some niche in high-value export but it has to be something very different than what China has been building its strength on. But I bet both the Govt would be interested to find the complementing position that being in loggerhead. None would ignore the growing business volume between two countries.

Percentage of working population is another factor that is considered huge infleuncing parameter for GDP growth. Japan's one of the problem is its large aged population. Compared to that both India and China have a large working-age population [look at the figure below]. That undoubtedly is one of the great advantage for India [within next 15 years, India will cross China's population] and will continue to be so for next 2 decades.

As a corollary to that, India's credit growth is going to explode. As per the following data, India's credit ratio is much lower compared to China [Indians are known to be conservative people]. In other words, as the economy grows, as more and more people become economically 'confident', they will push the growth of the economy and fact is both China and India have lot to gain by complementing each other than fighting each other. In other words, the way to go forward is to race with as opposed to race against, however we dislike the concept. The latest WTO session showed that both the country understand that aspect very well.

As per the Goldman Sach's projection, India and China combined will become the largest economy bloc by 2050 [http://en.wikipedia.org/wiki/BRIC]. They claim that India is going to be 40 times bigger than its present size.

But a lot of it depends on how the governance play in next twenty years but let me keep it for future deliberation.

A starter's comparison of two fastest developing economies

Of late my preoccupation about India has been more than what usually had been. It had to manifest somewhere in my numerous free-postings! So here is the first post on that, bit long but hopefully not entirely useless.
India and China, the two fastest growing economy of the world as stated in many recent studies, is the most talked about economy of late. We, Indians like to compare India more with China and less with our other's neighbour, however our neighbours feel we act bigger than we are. We even see some studies which suggest that in a decades, Indian economy will, perhaps, surpass China's economy. These are very confusing to my unscholarly mind and I am sure it is for many others. Easy way, I reckon, would be to start with where we stand presently.
I have compiled some data that are easily available in the net. I have picked three countries for comparison for the GDP comparison.

Annual GDP - US [$14.1 trillion] , presently ranked 1st.
Annual GDP - China [$4.327 trillion ], presently ranked 3rd
Annual GDP -  India [$1.254 trillion ], presently ranked 13rd

GDP per capita - US [ $ 45200 per person per year (2008) ]  world ranking: 24
GDP per capita - China [ $ 3290 per person per year (2008) ] world ranking: 142
GDP per capita - India [$ 1060  per person per year (2008) ] world ranking: 186

Economy Growth Rate: +1.12% Y-Y [US], +9.05% Y-Y [China], +7.29% Y-Y [India]
China has already seen double digit growth of late but it is very unsustainable. Economist believe that both India and China will see a growth of around 7-9% for next few years [with China keeping higher than India], however there are some study groups who believe China's economic growth will slow down faster than India. Without that debate, it is quite obvious that China will continue to maintain the present gap in GDP for reasonable time. But the question is will it increase further. In any case our data so far makes amply clear that surpassing China's GDP is more of  wishful thinking than a carefully studied projection.
However, there are other factors to consider. A country's growth depends a lot on how the system works. We know China's system moves faster since it is centralized. But there are pitfalls too. Since there are no opposition voice really erring policy decisions would incur higher cost than they would in India. I am not saying anything new here. Intuitively a Govt run by electoral system is believed to be more resilient in facing the changes. However China can prove to be exception. On the other hand an electoral system typically decimates to lowest common capability. India's weakness is myopic regional politics, a small bunch controlling the power at the helm and a sloth and colonial execution system. And they show their impact in the nation's growth. A simple comparison can be startling.
 In 2010 UN report on poverty a benchmark of poverty-line is defined as people living below $1.25 a day. It has praised both China and India that they were able to reduce the level of poverty over the last 15 years but what it does not comment is China has surpassed the projection of 2015 by a large margin in 2005 whereas India lags by large magnitidue.
See for yourself: China's percentage of poor people [meeting the above criteria] was 84% in 1981, 60% in 1990 and reduced to mere 15.9% in 2005. Their target for 2015 is 30%. Similar figure for India is 60% in 1981, 51.3% in 1990 and 41.6% in 2005. Their target is 25.7% for 2015 which they most likely will not meet unless Govt does something very drastic.
The enormity of the challenge can be further appreciated if we look at population growth of the two countries. India's present population is 1.18 billion [2008] with an growth rate 1.44%. Similar figures for China are 1.31 billion [2008] and 0.6% which is less than half of India's rate. China's inflation is way lower than India. It is accepted fact that population growth is highest at the lower income group which makes them go further down. In other words unless the poor is included in India's growth story, India will remain what it is, merely a potential that is yet to deliver, let alone being recognised as 'super-power'.