Rural Industrialization in China and India: Role of Policies and Institutions
Introduction
Over the last five decades, China and India have made dramatic improvements in their standard of living and structural transformation of the economy. Agricultural growth has made both countries self-sufficient in food, providing a residual surplus for export and capital for other sectors. Industries and services now form an integral part of the output and employment of the rural sector. The share of agriculture in total GDP has declined to less than one-third in India and about one-seventh in China. This transition is remarkable considering the initial situation in the two countries half a century ago.
However, a look behind the macro-economic aggregates reveals more rapid growth of rural nonfarm employment in China than in India, especially over the decade of the 1990s (Figure 1, Figure 2).1 This paper aims to address the following questions: why has the development of the rural nonfarm sector followed different paths in China and India over the past two decades? How much of the current growth or stagnation are the results of institutional differences between the two countries, especially in their political systems, ownership structure, and credit institutions? What lessons can be learned from the relative strengths and weaknesses of the rural nonfarm sector in the two countries? In a similar vein, Lal (1995) compares the economic liberalization in China and India up to 1990. However, because most of India’s liberalization policies did not fully start until the early 1990s, it is necessary to extend his comparison to a later period with a particular focus on the rural nonfarm sector.
After China and India’s entry into the World Trade Organization (WTO), they are having increasingly important impact on the world economy given their rapid growth and size.2 With globalization, there is greater capital flow to the two countries to take advantage of their cheap and abundant labor force, thereby stimulating the growth of their nonfarm sector. Rapidly industrialized China and India will affect production patterns, trade flows, financial flows, environmental spillovers, and global and regional governance (IDS Asian Drivers Team, 2006). An examination of the causes, potentials, strengths, and weaknesses in China and India should, therefore, provide useful indications for other developing countries in the process of nurturing a viable rural nonfarm sector in the current global context.
Section snippets
Policy framework for nonfarm development
In this section, we first present the patterns of rural nonfarm sector development and then look at the path of policy-making since the beginning of the 1950s in India and China. In the 1950s, both countries were largely agricultural societies. For China, the nonfarm sector took off only after the rapid growth in the agricultural sector from 1978 to 1984 and the shift to the Household Responsibility System. When China started the rural reform in 1978, the share of rural nonfarm employment in
The role of institutions and policies
Institutional developments and relationships translate government intentions, explicit or implicit, into action. Institutional relationships and governance have evolved significantly in both China and India over the past few decades and have influenced the current levels of dynamism in the rural nonfarm sector.
The impact of institutions and governance needs to be analyzed from several vantage points. Firstly, the differences in political economy have to be explained in order to appreciate the
Conclusions
Our comparative analysis shows that the difference in the trajectory of rural nonfarm sector development in China and India can be largely attributed to the difference in the institutional structure analyzed above. Regulations aimed to protect small industries in India may have hindered their growth compared to the spontaneous experience of China. Comparison of the relative strengths and weaknesses of the two countries indicates that there is likely to be a significant degree of convergence,
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2021, Journal of Rural StudiesCitation Excerpt :They assert that industry dominated rural development has advantages over other the three types in generating more employment opportunities and improving the productivity of the rural labour force. Industry dominated rural development has been greatly boosted by the growth of TVEs in rural industrialisation (Long et al., 2009), but the rural TVEs have developed unevenly across the regions (Ito, 2010; Mukherjee and Zhang, 2007; Rodriguez-Pose and Hardy, 2015). Regional differences in factor endowments, such as natural resources, finance, capital, and infrastructure have been suggested as the major causes of uneven regional rural industrial development (Ito, 2010; Long et al., 2011; Rogers, 2014; Shen and Tsai, 2016).