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India, China Per Capita Income Levels Can Converge By 2044, Says Brookings Institution

In a period where inflation is high, a rate hike is the common formula used by central banks across the world. While most of the major economies including India followed the path, the People's Bank of China (PBOC) in August lowered its one-year loan prime rate from 3.55 per cent to 3.45 per cent. The country entered deflationary territory in July with its consumer prices declining for the first time in two years. Even though the August data reveals that Beijing's deflationary pressure has eased, its debt crisis has deepened with the default by the second largest property developer in China, Country Garden.

In June 2023, China's unemployment rate for 16 to 24 year olds in urban areas hit a record high of more than 20 per cent. The Xi Jinping-led administration has decided to stop publishing youth unemployment figures, as per a government spokesperson quoted by BBC.

India rising

Even as China is suffering from a deflationary crisis coupled with unemployment, across the border, India is showing visible signs of progress as compared to its neighbour. The country's GDP growth is likely to top 7 per cent (per capita 6.2 per cent) in 2023, and unemployment rates are at a 12-year low of 4.1 per cent, as per a report by American think tank Brookings Institution.

The report says that while in 2019, the Indian PPP (purchasing power parity) per capita income was 47.5 per cent of China’s, it is estimated that a convergence in per capita income levels for India and China is very possible by 2044.

For this to happen, the per-capita growth rates in India should be higher than China on a sustained basis. As per the report, this had already started to happen in the previous decade. The per capita GDP growth in India (5.2 per cent) between 2010 and 2019 was higher than that of China (4.5 per cent). The Brookings report said that this marked the first decade after the 1960s when India grew faster than China.

What points toward the convergence?

The report mentions labour and human capital, physical capital, and total factor productivity growth as the indicators towards this convergence. When it comes to labour and human capital, education and labour force are considered. It says the revolution in the female education sector is an important factor in the march towards convergence. The report cites data to prove its point.

"There are more women in college in India today than men, and women in STEM disciplines (about 43 per cent of women graduates) are among the highest in the world. In the US, 32 per cent of female students graduate from STEM fields. This trend is suggestive…that the female labour force participation rate (FLFPR) in India will move toward at least 50 per cent over the next two decades," the report said.

When it comes to the labour force, it says that a mirror opposite of China is being witnessed in India. While the authors of the Brookings report estimate that the potential labour force (aged 15-64 years) in China is expected to decline by 0.7 per cent per year, the same is expected to increase by 0.72 per cent per year in India. The LFPR (labour force participation rate) is 75 per cent in China as compared to 51 per cent in India.

"The difference between India and China LFPR is entirely because LFPR for women in India is around 25 to 35 per cent (depending on definition) while China’s female LFPR is 70 per cent," the report said.

According to the date given above on female education and STEM, the report claims it is reasonable to expect that Indian female LFPR will reach at least 55 per cent over the next two decades. "This will mean an expansion of the effective labour force in India of 1.8 per cent per year (increase per annum in labor force 0.7 per cent and increase per annum in LFPR of 1.1 per cent)," the report added.

By Sankunni K

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