Growth, Reforms and Inequality: Comparing India and China

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 -gt 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 gt 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.