Effects of Credit Crunch in India and China: A Comparison

Effects of Credit Crunch in India and China: A Comparison

Introduction

When the economy of China began in the 1980s, the question arises: Why is India so far behind? The gap in growth rates has declined significantly over the past decade, India and confidence has soared, but a new question has been prompted by a deepening global recession, what country is better placed to withstand a crisis -- and prosper in the long term? The two economies are so diverse as Shanghai and Mumbai, cities that represent the vanguard of electronic commerce in each nation.

From Shanghai, with its magnetic levitation train, the extensive road network, the massive redevelopment projects, many industrial parks and towering skyscrapers, reflecting the central top down and export policies aimed at China's authoritarian government. In China, no goal is so ambitious that the demolition team and a fleet of concrete mixers can not achieve.

Mumbai, by contrast, large and chaotic, its crumbling infrastructure groaning under the rise of industry, its brilliant cons favelas settlement factories and global headquarters, reflecting the bureaucratic inefficiency of India, the socialist legacy, ethnic diversity and factious of democratic institutions. India seems to succeed in spite of himself, because a dynamic entrepreneurial culture.

In the struggle to cope with the financial and economic crisis, the comparison may seem to China that has a wide range of tools at their disposal than India. However, China's heavy dependence on exports, which contribute about 40% of its gross domestic product (GDP), will prove a difficult obstacle to overcome.

India is less exposed to exports, which represent only about 20% of its GDP. However, the country is vulnerable on foreign exchange reserves, fiscal deficits and capital flows, the key factors in the government's ability to influence the economy through fiscal policy, monetary policy and direct intervention in the private sector. In all respects, China has a greater capacity, given its huge foreign exchange reserves and extensive powers of government.

Foreign exchange reserves of China, about $ 2 trillion (€ 1.47 billion), well above India, which are almost 250 million dollars and said the government relies on them to defend the Indian rupee, which has lost 27% of its value against the U.S. dollar since March 2008. In the past eight months, foreign exchange reserves in India fell by more than 50 million dollars, note Byker, while China will continue to grow, albeit more slowly, as exports of way.

The problems arising from withdrawal of foreign capital rupiah in response to the financial crisis. Another result of this departure has been a correction in real estate and securities markets. India is more vulnerable to such fluctuations, "said Byker, due to their greater reliance on short-term capital such as portfolio investment flows and bank lending abroad. Capital flows into China, given the increased contribution of foreign direct investment (FDI) are more stable. Top financial resources of China are evident in its aggressive fiscal stimulus package yuan (CNY) 4 billion ($ 585bn), or 14% of the country CNY29 ...