Any discussion on Indo-Chinese GDP must factor in the World Bank’s much lower new estimates.
There are several issues raised by Suman Bery’s article “The next twenty years” (August 13). The Chinese Gross National Income (GNI) per capita (whether on current dollar or PPP bases) first of all merits careful disaggregation. For instance, in 2005, China unilaterally revised up its national GDP by 17 per cent based on “improved estimates of services sector output” as the Chinese government put it. Nobody objected to this action by that government then or now. The World Bank also accepted it. Yet in mid-2007, the Bank stunned the world when it announced that the economies of both China and India are about 40 per cent smaller than its own previous estimates. It attributed the reduction to its review of the PPP methodology for the two countries, viz. that it had now taken greater account of the fact that exchange rates are buffeted by various factors and were not correctly capturing in those two countries (alone) the true purchasing power of their respective local currencies.
Second, and flowing from the above first point, it was perhaps because of the above problems with the PPP basis that the London Economist magazine’s “Big Mac Index” was appealing — Big Macs are a standardised product worldwide, so their local prices provide a good basis for comparing price levels across countries. But even this is tricky — a BigMac is fast food in the United States but may be a rare treat and, therefore, priced as a premium product in a poor country. In any case, it is difficult to come up with more than a few other products — Starbucks coffee, Pizza Hut pies, The New York Times — that are similar across countries.
The World Bank has made a noble effort at constructing comparable international prices. Sure, there are big problems with the data. For instance, the data for China are based on surveys in just 11 cities. Prices for rural areas — where 60 per cent of China’s population still resides — are based on extrapolations from these data. Extrapolations over almost 800 million people!
Before dismissing this as pure guess work, consider how massive and difficult the exercise is when it covers 1,000 products in 146 countries. National accounts data is an imprecise science — more of an art, really — and there are still huge gaps in these data, even in advanced industrial countries. Improvements in these data are to be welcomed. But the revisions should be treated with circumspection and not immediately result in a massive shift in world-view. Even if one takes the new data seriously, the bottom line is that they do not change the reality on the ground. These two countries are still growing rapidly, consuming as many resources and spewing out as much pollution as before.
What then has changed? It is the perception that China will soon take over the world if it keeps growing at 10 per cent a year, or that China and India are the new engines for world growth, with the US business cycle mattering a lot less. The people who bought into those overblown ideas are ones most shaken by the new numbers. The new World Bank data may change our perception of reality. But much of the reality is no different from what it was. The rest is just hype.
What countries like ours (and western China at least if not many parts of central-west China as well) with large numbers of very poor people, need is (a) rapid demographic stabilisation and (b) meeting the basic needs of all the people. Using country averaged GNI figures when there are huge inter-regional and even intra-regional consumption employment and even nutrition and health inequalities have little meaning as Development Indicators, Economic Growth and Development diverge too sharply to be at all equitable or accurate. The national average “GNI” apply as little to Xinjiang, many parts of central and western Tibet, inner Mangolia and even Szechuan in the Chinese case as to Orissa, Jharkhand, Chhattisgarh, eastern Madhya Pradesh and north Bengal in our case. The national Gini coefficient (measure of income inequality) of China at 6.2 compared to our 4.4 in 2006 (World Bank figures) shows what the realities are. According to the same data source, per capita income differentials between China’s eastern seaboard and its western provinces were over 6:1 as far back as 2002. God knows how much it has worsened in last five years. As a physicist — indeed even as a well informed lay person knows — the law of average breaks down long before such gargantuan differentials are reached.
What we should be looking at in China and learning from it are the human development index figures in comparison with our dismal performance. They are the true measures of development achievements and basic needs achievements in both countries, indeed in all countries. We just cannot continue with Gross National Public Health Investments of 0.75 of GDP compared to the 3 per cent China achieved as far back as 1980. This was despite the cruel political, economic, social and cultural ravages of the 10 years of the “Great Peoples Cultural Revolution” (GPCR). The GPCR was the historically unprecedented societal devastation and dislocation on a society-wide scale in which it is now universally acknowledged that as many as 15 million Chinese died. Yet even in this area, the rural-urban disparity in underweight children is sharper in China than here. In more directly developmental terms, while the ratio of the “poor” (we do not know how the Chinese define poor) in the Chinese population declined from 63.8 to 9.9 per cent in urban areas over 1980-2000, the rate of poverty reduction has declined since then and so has the rate of growth of real wages, in all cities, semi-urban/rural and rural areas since 1990 (ILO reports and specific country studies in various years).
In short, it is important to separate facts from hype.
The writer is a former secretary of various scientific departments of the Government of India and former S&T adviser to late Prime Minister Indira Gandhi
