The emergence of China and India on the global economic stage has understandably been the
subject of much discussion in international media, business and policy circles. The nearly 9
percent annual rate of real per-capita GDP growth that China has averaged over the last quarter
century is unprecedented. And with an average growth rate of GDP per-capita of nearly 4 percent
per annum since 1981, India’s “takeoff” seems less than spectacular only in comparison with
China’s.
In both countries, this growth has been accompanied by substantial—in the case of China,
dramatic—reductions in the aggregate incidence of absolute poverty measured in terms of income
or consumption. Figure 6.1 displays these two trends for the two countries over the period from
1981 to 2001.1
The headcount rates of poverty are calculated on as comparable a basis as is
currently feasible with the data available. The poverty line is the World Bank’s dollar-a-day
global standard of about $32.74 per month at 1993 Purchasing Power Parity. China started this
period with the higher poverty rate, but soon overtook India.
However, concerns are being expressed about the distributional impacts of the growth
processes in both countries. The domestic debate about growth-promoting reforms has become
increasingly contentious. It is widely felt that the gains from growth have been spread too
unevenly, with some segments of the population left behind in relative and even absolute terms.
This unevenness has shown up as rising income inequality by conventional measures in both
countries. These developments in turn have led some to question the sustainability of growth.
What is one to make of this? In what ways has growth been uneven? Are the data suggesting
rising inequality to be believed? If so, should the fact that segments of the population appear to
have been left behind (at least in relative terms) be of concern? And does this pose a risk to the
sustainability of growth and poverty reduction?
This paper tries to shed some light on these questions. While of undeniable interest in both
countries, these questions also merit attention elsewhere because the impact that the rise of China
and India is going to have on the rest of the world—a topic that has received enormous attention
in the press over recent years—depends very much on whether these two giants are able to sustain
the growth rates they have achieved over the last quarter century. And that in turn hinges on
whether the concerns about the unevenness of the growth thus far are legitimate and whether that
unevenness poses a risk to future growth