2. NEW ECONOMIC POLICY
IN INDIA & CHINA
The Chinese economic reform
(simplified Chinese: 改革开放;
traditional Chinese: 改革開放;
pinyin: Gǎigé kāifàng; literally:
"reform and opening-up") refers to
the program of economic reforms
termed "Socialism with Chinese
characteristics" in the People's
Republic of China (PRC) that was
started in December 1978 by
reformists within the Communist
Party of China, led by Deng
Xiaoping.
China had one of the world's
largest and most advanced
economies prior to the nineteenth
century.In the 18th century, Adam
Smith claimed China had long been
one of the richest, that is, one of
the most fertile, best cultivated,
most industrious, most prosperous
and most urbanized countries in
the world.The economy stagnated
beginning in the 16th century and
even declined in absolute terms in
the nineteenth and much of the
twentieth century, with a brief
recovery in the 1930s
The economic liberalisation in
India refers to the economic
liberalisation, initiated in
1991, of the country's
economic policies, with the
goal of making the economy
more market and service-
oriented and expanding the
role of private and foreign
investment. Specific changes
include a reduction in import
tariffs, deregulation of
markets, reduction of taxes,
and greater foreign
investment. Liberalisation has
been credited by its
proponents for the high
economic growth recorded by
the country in the 1990s and
2000s. Its opponents have
blamed it for increased
poverty, inequality and
economic degradation. The
overall direction of
liberalisation has since
remained the same,
irrespective of the ruling party,
although no party has yet
solved a variety of politically
difficult issues, such as
4. Chinese economy prior to
reform
• During the 1930s, China developed a modern industrial
sector, which stimulated modest but significant
economic growth. Before the collapse of international
trade that followed the onset of the Great Depression,
China’s share of world trade and its ratio of foreign
trade to GDP achieved levels that were not regained for
over sixty years.
The economy was heavily disrupted by the war against
Japan and the Chinese Civil War from 1937 to 1949, after
which the victorious communists installed a planned
economy.[not in citation given] Afterwards, the
economy largely stagnated[citation needed] and was
disrupted by the Great Leap Forward famine which killed
between 30 and 40 million people, and the purges of
the Cultural Revolution further disrupted the
economy.[citation needed] Urban Chinese citizens
experienced virtually no increase in living standards
from 1957 onwards, and rural Chinese had no better
living standards in the 1970s than the 1930s.[not in
citation given] One study noted that average pay levels
in the catering sector exceeded wages in higher
education.
The economic performance of the People's Republic of
China was poor in comparison with other East Asian
countries, such as Japan, South Korea and rival Chiang
Kai-shek's Republic of China. [according to whom?] The
economy was riddled with huge inefficiencies and
malinvestments, and with Mao's death, the Communist
Party of China (CPC) leadership turned to market-
oriented reforms to salvage the failing economy
5. Foreign direct investment has been recognized as an imperative
driver of economic growth and development. One of the most
prominent developments during the last two decades is the
spectacular growth of foreign direct investment in the global
economic scenario (Goel et al. 2012). Prior to independence,
exports in India were primarily agricultural products and the
industrial products were backward and underdeveloped. Over the
last six decades, the Indian economy has completely revolutionized.
The industrial sector has come a long way from its dilapidated state
to a more modernized state. The exports now cover a wide range of
traditional products like coffee, cocoa, bauxite, gypsum etc.
Similarly, the non-traditional products like bakery products, dairy
products; alcoholic, non-alcoholic beverages, limestone, furniture
and mineral fuels also constitute a major part of exports from India.
Whereas imports mainly consist of capital goods, petroleum
products, raw materials, intermediates and chemicals to meet the
ever increasing industrial demands (Bhat 2011).
Scenario of Indian economy before the economic reform
There have been significant changes in the capital formation after
the introduction of economic reforms. The net savings and final
consumption expenditure of the Indian economy have changed due
to the increase in the inflow of the foreign direct investment. Before
1991 the inflow of foreign investment in India was mainly in the
form of borrowing. In the second five-year plan of 1956-61, main
focus was on imports from foreign investments and loans to focus
on the rapid industrialization in India. Furthermore the inflow of
foreign direct investment was encouraged in the period of sixth five-
year plan 1980-85. However, the primary and tertiary sectors were
ignored in the period before 1991 (Bose 2015). The table displays
that in the period before 1991, the inflow of foreign direct
investment was very less and limited to a few sectors.
The Indian economy before
the economic reform
6. Year 1980 1985 1990
GDP (million US$) 189594 236589 326608
Exports (million
US$)
11274 12849 22639
Imports (million
US$)
16927 18984 29526
FDI (million US$) 79.16 106.09 236.69
Savings (% OF GDP) 19.3 21.1 23.5
Gross capital
formation (% of
GDP)
18.0 23.5 24.9
Unemployment (%
of Labour force )
3.5 3.6 4.3
Final Consumption
Expenditure ( % of
GDP)
80.7 78.9 76.5
7. Trade Performance of India and China
in Micro, Small and Medium
Enterprises Sector
• The Chinese word for Crisis (Wei Ji) consists of two
characters, Danger and Opportunity. This
• perhaps best characterizes China’s emergence as an
economic power. This is also summed up by
• Stephen Roach, Chief Global Economists for Morgan
Stanley, "Over the next 10 years, the
• emergence of China will be both a great challenge and
great opportunity to the other countries of
• Asia". The present paper discusses upon such strategic
intent of Chinese MSMEs and their
• versatility to become an unchallengeable leader. The
SWOT analysis of Indian MSMEs helps to
• check their readiness for the coming challenges from the
next biggest emerging economy. The
• present economic scenario in India and MSMEs role in it
has been explored. Except this, the
• flow of Foreign Direct Investments and performance of
China and India in various sectors has
• been compared. The strategic moves of the Chinese
MSMEs have been examined to make aware
• the Indian MSMEs of the possible consequences. What
India MSMEs can do to counter the
• upcoming challenges has been given in the suggestive
form.
• Key words: China, FDI, Globalization, GDP, India, MNC,
8.
9. Globalization is swapping the every possible corner of the
globe steadily yet gradually. Mammoth like companies are
penetrating the threshold of potential nations as freelancers
and exploiting every inch of feasibility to carry out
commercial activities. Undoubtedly, the entire world is
experiencing the glare of new horizon. Even laggards nations
are also turning out to be a country of immense potential
and dynamism. They too, have awakened miserably to
comprehend their self worth and entity while bearing the
torch of Globalization. The shed of globalization have not
only sprinkled capitalistic or mercantilist but even countries
like China – a hardcore communist country is also not remain
untouched with it. Albeit, the Dragon responding
affirmatively to the hot current of Globalization yet their way
is un-orthodoxical, strange and inventive.
Under the shade of Globalization, countries tunnalised into
other nations through its outstanding corporate, Trans
National Companies (TNCs), in the wake of exploring better
margins, expeditious turnover, economies of scale and
productivity. This has been proving a bed of roses for
economically consolidated countries viz. U.S.A., U.K., Japan,
South-Korea etc. Paradoxically, China – the Dragon, has
opted for a by-pass route while invading the Micro, Small and
Medium Sectors (MSMEs) of India Industries. It has not
confronted tycoons on front, instead just as studious tortoise
outrunning Indian MSMEs by introducing less expensive yet
far decorative and alluring goods viz. electronic frills, idols,
bangles, locks etc. Whilst business acumen term it as
Dumping which entails negative connotation but authors
realize it as a phenomenal business trick something to learn
inculcating tremendous prosperous business prospects. Such
commercial avenues which has made India Inc. a hot cake for
China and which has led an attention towards adverse
impact of such invasion which is minute so far but may be
aggravated in years to follow.
10. Unquestionably, savvy customers have been endowed
with such offering and realizing the appreciation of
value vis-à-vis price they pay for, but on the contrary
small and medium workers are hit adversely as their
source of sustenance has been threaten. The virtual
impact has already started to be crept in as numbers
of daily wage earners have already either switched
from their family business in the hunt of their
livelihood or turned out under/unemployed In the
worst case if problem persist, that day is no longer
when they would find themselves standing at the
verge of committing suicide. Besides this, at a macro
level as well, this invasion is alarming and biting India’s
small and medium scaled companies like termite. At
one end, Indian large scaled companies are still
struggling to combat upon the onslaught of Multi
National Companies (MNCs) as due to their arrival,
indigenous companies have either cornered down or
wholly disappeared. On the other hand China with its
slow but strong presence is ready to replace its
MSMEs and therefore, making India’s Economy
without clutches. Hence, there is a dire necessity arise
for this problem emphatically to safeguard India Inc.
from further damages as it is said – ‘A Stitch in time,
saves Nine’.
12. Industrial SME Medium
PAYROLLS 2000 300 or more
REVENUE
300 Million RMB 30 Million RMB
TOTAL ASSETS
400 Million RMB 40 Million RMB
Rest are in the Small Category.
Aspects of Policy:
1. Encourage indirect Financing
2. Promotion of SME credit guarantee system(e.g. Credit
guarantee agencies exempted from turn over tax)
3. Support for business start up • development of
training programme
• entrepreneurship monitoring
• business start up services by intermediary service
agencies.
• Govt. support.
• Technology Incubator scheme.
MSME POLICY IN INDIA
