Comparative Analysis of the Economic Evolution of India and China Over the Past Two Decades

India and China, the two most populous nations in the world, have evinced comparison for some reason for many a decade now, with their large populations, rich cultural backgrounds, and large geopolitical contributions. While both countries have grown immensely over the past few decades, it can be said that their paths have diverged significantly. The divergence has been responsible for making China the second-largest economy in the world, whereas India is still emerging as an economic power in the world. This paper attempts to trace the twenty-year economic journey of these two Asian giants, focusing on the determinants and challenges of their growth and the prospects for the future.

Historical Background: From Similar Beginning to Divergent Paths

Economically, India and China were not very different in the 1980s. Both of them were poor nations with underdeveloped infrastructure and an underdeveloped industrial base. Indeed, India's per capita income was higher than that of China then. If we speak of the year 1980, then per capita income in India was $582, nearly double China's per capita GDP of $307. This was however followed by the subsequent decades of China's remarkable economic transformation, a course of development that left India far behind on several important economic indices.

Deng Xiaoping initiated the reform process of China's economy in the late 1970s, which initiated the process of rapid industrialization and modernization. The reforms introduced market-oriented policies, opened China to foreign investment, and allowed the establishment of Special Economic Zones. These were the factors that set off China's headlong economic rise from a largely agrarian economy to a global manufacturing power.

In contrast, the economic reforms in India happened pretty late. It was in the 1990s that India started opening up its economy under then Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh. It involved tattering trade barriers, deregulating industries, and encouraging foreign investment. No doubt these changes paved the way to high growth, but when compared with China, the growth of India has been slow.

GDP Growth: The Diverging Economies

The most striking difference between these two countries today is the size of their respective economies. Based on IMF estimates, the GDP of China in 2024 is going to be a whopping $18.53 trillion, against about $3.93 trillion for India. The gap is gigantic and represents enormous differences in their economic performances over the last four decades.

In 1980, China's GDP stood at $303 billion, while that of India was $186 billion. In the next 44 years, China's GDP would grow nearly 61 times, and India's more than 21 times. Never before in history has there been an economic growth of this magnitude—fueled by its powerful manufacturing sector, export-oriented growth strategy, and huge investments in infrastructure.

While recording significant growth, India's growth rate has remained far behind that of China. In the last one decade of the BJP-led NDA government, there has been huge economic progress. In 2014-24, the Indian economy expanded by 93 percent from $2.04 trillion to $3.93 trillion. In this ten-year period, China's economy expanded by 76 percent from $10.5 trillion to $18.53 trillion.

This decade from 2004 to 2014 was marked similarly by strong economic growth under the United Progressive Alliance government of India. In that, India's GDP grew 188 percent from $709 billion to $2.039 trillion. Comparative to that period, China's GDP grew an astonishing 440 percent from $1.95 trillion to $10.5 trillion. These figures indicate just how fast China's economy has grown vis-à-vis India's more sedate progress.

Per Capita GDP: Widening Incomes

Another critical metric underlining the economic divergence of India from China pertains to per capita GDP. While in 2024 that for China stood at $25,015, for India it remained at $10,123, almost 2.5 times lower. This was quite opposite to the situation prevailing in 1980 when per capita income in India used to be $582, almost double the per capita GDP of China, which stood at $307.

It has been influenced by rapid industrialization, urbanization, and high-added-value industries such as technology and manufacturing. These industries have increased the average income of Chinese citizens manifold, moving hundreds of millions out of poverty and into middle-income status. Since 1980, per capita income in China has increased by nearly 82 times, which is a huge success given its economic model.

Per capita income of India has also risen and in 2023, it reached more than 17 times the level in 1980. It has had slower growth compared to China. During Modi's government between 2014 and 2024, per capita income of India nearly doubled and increased by 95 per cent from $5,187 to $10,123. In the same period, per capita income of China increased by 100 per cent from $12,496 to $25,015.

In the last decade under Manmohan Singh-led UPA rule, per capita income of India increased by 93 percent—alone from $2,681 in 2004 to $5,187 in 2014. On the other hand, China's per capita income rose during that time by 185 percent, thus making its growth of income faster than India's.

Another area of divergence between these two countries has been the management of government debt. In 2024, the general government gross debt expressed in percentage terms of GDP stood at 82.5 percent in the case of India, while that of the Chinese was a bit higher at 88.6 percent. These are massive deviations from previous decades.

Whereas the government debt of India in 1995 accounted for 71% of GDP, in China it was substantially lower at 21.6%. However, in the early years of 2000, the Indians did make a conscious attempt to bring their debt levels down, especially during the tenure of the UPA government. From 2004 through 2014, the government debt went down from 84.9% to 67.1% of GDP, which portrays a lot of fiscal discipline and prudence in managing the economy.

The debt levels, however, have risen again in the last few years. Indebtedness of India under the BJP government has risen to 82.5 per cent of GDP in 2024, which underscores the challenges brought in by higher outlays on infrastructure, social schemes, and subsidies. At the same time, the Chinese government's has also climbed, driven by ambitious infrastructure projects and efforts to prop up economic growth as global uncertainties loom large.

Exports: China's Dominance in Global Trade

Perhaps the most evident case of this would be in world trade, where the growing economic might of China is the most vividly manifested. According to data from the World Bank, since 2023, China has held the status as the world's largest exporter, with a value of goods and services exported standing at $3.5 trillion, accounting for a 14% share of world exports and underlining the key role the country plays in the global economy.

In terms of building out its base of exports, India is making progress but way behind. Ranked the tenth-largest exporter in the world, India's exports were worth $0.78 trillion as of 2023, nearly five times less than China's—indicative of a huge gap between the two nations concerning global trade.

Coupled with its concentration on manufacturing and technology, the export-oriented growth strategy has let China capture extraordinary market share in industries as far apart as electronics and textiles. In contrast, India has failed to create a similar type of manufacturing base, leaning heavily on services and agricultural exports.

The Way Forward: India's Promise and Challenges

Experts say that, notwithstanding the huge gap that separates India from China, there is no denying the fact that India does have the propensity to become one of the main powers of the world and the largest economies. For this to fructify, India needs to stay on its growth track, pay attention to infrastructure development, increase domestic manufacturing, and pursue fiscal discipline.

On the other hand, India's demographic dividend—young and growing workforce—is an opportunity that is waiting to fructify into growth in times to come. This will happen only if there is sustained investment in education, skills development, and health care. Notably, India will have to persist with a better business environment, ease of regulations, and greater inflows of FDI to propel industrial growth.

A comparison between India and China over the last two decades yields important lessons for policymakers and economists: how the government-driven impetus of China, with massive investment in infrastructure, has propelled rapid growth vis-à-vis more organic growth in India—driven by entrepreneurship, services, and gradual reforms.

While pursuing rapid development in the times ahead, India has to balance it with sustainable growth. How much ever challenging the path to global economic powerhouse may be, provided the right policies and strategies are adopted, India can continue to rise on the global stage.

Conclusion: China has surged far ahead of India in economic terms, but it is not as yet all lost for India. The decade will be critical in determining whether or not India would be able to close the gap with the neighbor and fulfill that potential to become a global leader in economic terms.