Introduction

In the early 1950s, China and India – two new nations embarking on development – were similar in many respects. In terms of geographical area and population, both were large countries. Both were low-income economies that had suffered centuries of economic stagnation. Both were labour-surplus dual economies with not too dissimilar structures. Arguably, India was a little more advanced than China; India's per capita income was a little higher (Figure 3.1) and economic structure was a little more evolved (as discussed below).

As it happened, the two countries also adopted remarkably similar growth strategies, which emphasized industrialization led by heavy industries, import substitution under trade protection and entrepreneurial role of the state. China, however, also embarked on a radical transformation of its economic institutions; agriculture was collectivized and private entrepreneurship in non-agriculture was abolished. No comparable institutional change occurred in India, which had a peasant agriculture and a mixed economy in nonagriculture, though fairly pervasive government controls over private entrepreneurial activities in non-agriculture were put in place.

During 1955–78, when their growth strategies remained broadly unchanged, the pace and pattern of growth in the two countries were fairly similar. Growth was a little faster in China than in India, though India's growth was relatively stable while China's growth suffered large fluctuations (periods of rapid growth interspersed with periods of drastic decline) in consequence of periodic social-political upheavals. By 1978, the two countries had very similar levels of per capita income (Figure 3.1) and economic structure (as we shall see below).

It was in the late 1970s that both countries began to implement economic reforms that were to bring about significant changes in their growth trajectories. The reforms in China defined a new road to industrialization rather than a new growth strategy. Industrialization remained central to China's growth strategy, but the emphasis shifted from heavy industries to light industries and from import substitution to export orientation. It was in pursuit of export-oriented industrialization that the economy was gradually opened up to trade and capital flows. Once again, however, important institutional reforms were implemented; agriculture was de-collectivized engendering emergence of egalitarian peasant farming, and private entrepreneurship in non-agriculture was restored and encouraged. The reforms implemented in India bore some similarities to those implemented in China (though, unlike in China, no radical institutional reforms were implemented in India): government controls over private entrepreneurial activities were relaxed, protectionism was abandoned and the economy was gradually opened up to trade and capital flows.