China and India: Drivers of Rapid Economic Growth

Introduction: Two Giants on the Rise

How did China and India emerge so rapidly as enormous economic powers? This paper reviews the circumstances of the economic advancement that both countries have made, and establishes that these nations became economic powerhouses due to the sheer size of their economies — along with the strategies they employed.

India's Economic Acceleration and Private Investment

The Indian economy has been among the fastest-growing economies in the world since the late 1980s, according to Kunal Sen, writing in the peer-reviewed journal Contemporary South Asia. He argues that most experts in "the international financial press" are incorrect when they assert that the Indian economy began to accelerate following the "radical economic reforms of 1991" (Sen, 2009, p. 364).

In fact, Sen writes, the gross domestic product (GDP) per capita began to rise "in the late 1970s, and has kept on steadily increasing over the last two decades of the twentieth century" (p. 364). What difference does it make exactly when the Indian economy began to flourish? Sen argues that knowing when growth truly took off "holds the key to the puzzle that has engaged India-observers in recent years" — namely, why did growth accelerate in the late 1970s to early 1980s? (p. 365).

Sen attributes the acceleration in growth largely to the "surge in private investment in machines." He explains that machinery investment matters for economic growth more than other types of investment because "the role of external economies is greater for machinery investment than for housing investment," since machinery investment requires "a great amount of research and development expenditures" (p. 369). The increase in India's investment in machinery explains both the "faster rate of accumulation of capital" and the dramatic increase in productivity, which continued for more than twenty years after the surge began (Sen, 2009, p. 369).

The Role of India's Construction Sector

One clear component of India's economy that has helped this largest of the world's democratic nations become so powerful economically is its construction sector. According to Hrushikesh Mallick and Mantu Kumar Mahalik, writing in the Journal of Real Estate Finance and Economics, numerous scholars have investigated the dynamics of growth in India and have examined "various factors" important to economic growth (Mallick et al., 2008, p. 368). Those factors include government "policy variables" such as expenditures, tax-financing, and alternative financing methods (p. 369).

Moreover, governments spend billions of dollars on the "provision of infrastructure, health and medical facilities and education," all in the name of providing for their citizens, Mallick and Mahalik note. In a market economy such as India's, the private sector also offers services similar to those provided by government, and citizens expect private sector services to be available at market prices (p. 369). The private sector owns its "capital stock," and when the federal government provides "capital infrastructure," it creates "positive spillover effects on the private sector."

India has built its economy on these well-understood components. However, India's construction industry — encompassing both public and private activity — makes indirect and direct contributions to economic output, and is powerfully linked to other sectors of the Indian economy (Mallick et al., 2008, p. 369). The construction industry (housing, corporate development, commercial complexes, bridges, dams, highways, schools, and more) contributes to the economy in two ways: when a construction project reaches its "final form," it adds to "total output and wealth (in an accounting sense)," or alternatively, it may support further production processes, which ultimately boosts overall output (p. 370).

Conclusion: Scale, Strategy, and Future Trajectories

Both China and India have built their extraordinary economic rise on a combination of sheer scale and deliberate strategic choices. India's surge in private machinery investment and the powerful role of its construction sector have driven capital accumulation and productivity gains for decades. China's phased economic reforms, explosive expansion of international trade, and careful demographic policy have produced GDP growth rates that far outpace the global average. As each country looks to the future, demographic trends and the need for deeper institutional reform will shape whether and how each nation sustains its remarkable ascent.