How can India overtake China in Economic development?

 Why is it in the news ?

1.The Union Budget 2025-26, comprises total expenditure of ₹50.65 Lakh crore. The capital expenditure  constitutes ₹11.21 lakh crore, while revenue expenditure includes ₹39.44 lakh crore. The revenue expenditure encompasses the operational expenses of the government including salaries, subsidies, interest payment and other routine expenditures. These are consumption expenditures of the government. In the 2025-26 budget, the government extended the threshold tax free income to ₹12 lakh. In addition, the salaried class would get ₹75 thousand standard deductions. Thus, those individuals who are earning ₹12 lakh 75 thousand annually would get a tax benefit of ₹80 thousand. Similarly, those who are earning ₹24 lakh, they will get the tax benefit of ₹1 lakh 10 thousand. These tax rebates on personal income tax are intended to boost private consumption and increase the disposable income of 30 million individuals to create demands in the economy. In the process, the government lost 1 lakh crore rupees as tax revenue. 

2.There are four sources of expenditures that increase demand in the economy. These are private consumption, private investment, government expenditure for consumption and investment and finally net exports of goods and services. It is to be noted that compared to investment the multiplier effect rising from increased consumption is much weaker. For example, if income increases, the consumption also increases but it is not sure that the more the increase in consumption would lead to increases in income. Thus, it is imperative that our approach should be on investment led growth rather than on consumption led growth. 

Status of the economies of India and China between 1960 to  2023

1.According to the World Bank, in 1964, the GDP of China was $59 billion followed by $56 billion of India. In 2023, India’s GDP was $3.5 trillion, while Chinese GDP went to $17 trillion. Between 1960 to 1980, the per capita income of India was bigger than that of China, while India had $271 per capita income, China had only $194 per capita income. 

India is set to achieve an addition of  $383 billion in 2025 in its GDP while China in spite of the low growth of 4.5% is to add $1.26 trillion dollar to its GDP during the same period because of the big scale of its economy. It is expected by the IMF that by 2029. The GDP of China would cross $24.6 trillion while India would achieve $6.3 trillion, thereby, the Chinese economy becoming almost 4 times larger than the Indian economy.  In the early 90s, the per capita income of India and China were almost the same, the average per capita income of Indian and Chinese was 1.5% of the average income of an American. In 2023, the per capita income of China has grown 5 times as high as Indians. In PPP terms, it was 2.4 times more for Chinese. So, GDP per capita in 2023 was $2481 for average Indians and $12614 for average Chinese.

How China surpassed India ahead? 

1.China came under communist rule in 1949. It patterned its economy on the Soviet model. It laid stress upon heavy industries and collectivisation under the central command. After getting independence  in 1947, India embarked upon a mixed economy whereby the public sector enterprises were to achieve the commanding heights of the economy. The economy was regulated so much so that license-permit-quota raj pervaded all the economic activities. This stifled the growth of the economy. Most of the public sector enterprises started incurring losses in 1980’s. 

2.In 1978, Deng-Xiao-Ping initiated economic reforms in China whereby foreign companies and firms were permitted to operate in China. Thus, the Chinese economy opened up. China was converted from a socialist controlled economy to socialist market economy. Huge amount of foreign direct investment came into China. By 1994 nearly $100 billion reached China as FDI and it was 18% of the total fixed investment. This foreign money built factories, created jobs, linked China to international markets and led to important transfers of technology. Economic liberalisation boosted exports. The export rose to 19% a year during 1981-94. Strong export growth in turn fuelled productivity growth in domestic industries. Thus, strong productive growth spurred by market oriented reforms was the leading cause of China’s unprecedented economic performances. 

The productivity of the agriculture sector further increased. For example, the yield of rice was 7.15 tons per hectare, wheat was 5.91 tons per hectare, cotton was 2154 tons per hectare against India’s 4.12 tons per hectare for rice, 3.56 tons per hectare for wheat, 499 kg per hectare for cotton. 

3. De-collectivisation was started whereby farmers were given autonomy to sell their produce in the market. Special economic zones were created to boost exports. This zone enjoyed tax breaks, less regulation, better infrastructure, and huge foreign direct investment flowed into China.

4.In 1991, India opened its economy. License-permit- quota raj ended. The policy of liberalisation and privatisation started. An effort was made to integrate the Indian economy with the global economy. Custom duties were reduced from 80% to 25% on goods and services imported from foreign countries. China focused upon export led growth. There was less hurdle to pursue economic reforms on account of one party rule. 

5.On the other hand India suffered because of bureaucratic hurdles, coalition governments and different parties pulling in different directions.  

The export-led growth supported by huge amounts of foreign direct investments made China a world factory. This is why manufacturing constitutes 30% of the GDP of China. India could not advance in the manufacturing sector like China in spite of its efforts to Make in India initiative and production linked initiatives. Manufacturing only constitutes 17% to the GDP of India. It not only creates jobs but also facilitates the transfer of technology, boosts exports, raises the standard of living and absorbs skilled and semi skilled labourers on a huge scale. 

6.China has over 44.3% saving rates of GDP in 2023. This higher saving rate allowed China to invest in businesses, industries, agriculture and  infrastructure. Compared to China, the gross savings rates of India as of March 2023 was 30.2% of GDP. Infrastructure in India also lagged behind China. This puts a high cost on logistics in India. 

7.This abrupt rise in the per capita income of the Chinese became possible because of huge investments. For example, in 1992, investment as a share of GDP was 39.1% in China, in India, it was 27.4%. 

8. By 2014, the investment rate rose to 45% to GDP in China but for India it was only 31.3%. In 2023, the investment rates were 42.3 % and 30.8% respectively for China and India. 

9. In contrast in 2023, consumption as a share of GDP was 60.3% in India compared to 39.1% in China. This is because the shares of government investments and consumption expenditure are relatively low. Moreover, India has always had a deficit in trade, having more imports of goods and services than exports, thereby causing reduction in domestic demands. Economic growth led by consumption is not only slower than investment led growth but it also aggravates inequalities  causing joblessness among people. 

10. According to the International Labour Organisation, China has consistently maintained a high labour force participation rate at 73%, in contrast to India’s 50% in 2022. Low labour participation is on account of decreased female labour participation in India which accounted for 24% in 2022. 

11. While India has always had a deficit trade whereby India imports more than it exports. India exported $770 billion and  imported $890 billion in 2022-23, China exported $1.2 trillion and imported $950 billion. Thus, it always has a surplus trade. 

12.The twin deficits of current account and fiscal makes imports costlier, weakens the value of rupee and thus, creates less demand in the Indian economy. 

What are ways out? What measures India can adopt to overtake the Chinese economy in the coming years?

1. Increasing investments in the economy. 

2. Reducing rate of consumption. 

3. Boosting exports 

4. Enhancing female labour force participation

5. Generating employment opportunity in manufacturing

6.Strengthening infrastructure to reduce the cost of logistics.

7. Fostering regional and international cooperation by expanding market access  not only domestically but in the international arena.

8. Emphasising education and skill development. 

9. Encouraging private businesses to invest more in the economy. 

Conclusion

India has vast potential to become the world power and surpass China in economic growth if it harnesses the cheap abundant labour force, incomes of  the rising middle class, transfer of technology , improves domestic institutional investments, increases wages and enhances competitiveness of the goods and services in the foreign market. To sum up, huge investments, not consumptions would lead India to make it a superpower and would surpass China in coming years.

Election Commission in India : Its functions. How to strengthen it ?

 Why is it in the news?

1.The President of India recently appointed Election Commissioner, Mr. Gyanesh Kumar as the Chief Election Commissioner and Dr. Vivek Joshi as Election Commissioner. 

2. The selection committee comprising the Prime Minister, the leader of opposition and the Home Minister selected the CEC and EC. However, the leader of opposition submitted a letter of dissent contending that since the Supreme Court was set to hear the appointment process challenging the removal of the Chief Justice of India as member of the selection committee under new law.  However, his dissent note was not taken into consideration and the President of India on the recommendation of the selection committee by the majority vote of 2:1, headed by the Prime Minister, appointed Mr Gyanesh Kumar as the Chief Election Commissioner with immediate effect. While the EC Mr Vivek Joshi was appointed with effect from the day he assumed charge of his office. 

3. In 2023, in the case of Anoop Barnawal vs Union of India, the Supreme Court held that the framers of India’s constitution had never intended to give the executive exclusive appointment powers with regard to CEC and ECs. It held that a selection committee comprising the Prime Minister, the leader of the opposition party in Lok Sabha and the Chief Justice of India would select CEC and ECs until Parliament enacted a law. 

4. The appointment process of CEC and ECs is to be heard by the Supreme Court in March. The court has to decide whether Parliament has the legal authority to override or modify a judgement of a constitution bench through legislation or by promulgating an ordinance. The Supreme Court has also assured the petitioner that the consequences of the court’s decision on the validity of the new Act would apply even if appointment was made in the interim. 

How are the Chief Election Commissioner and Election Commissioners appointed? 

1.CEC is appointed under article 324 of our constitution. Until 1989, there was a single member election commission when the Central Government appointed two other ECs. But the United Front Government cancelled the appointments of ECs and reduced the election commission to a single member body as earlier. But in 1993, the Congress government again made the election commission as 3 member body consisting of CEC and two ECs. 

2. Before the new Act, of 2023,  relating to the appointment conditions of services and terms of office of CEC and ECs, the President appointed the CEC and ECs on the advice of the cabinet headed by the Prime Minister. Incumbent CEC was succeeded by the next senior most EC. 

3. After the new Act, the procedure is to establish a search committee headed by the law minister and two senior officers of the rank of secretaries who are to shortlist five candidates. These shortlisted candidates are sent to a selection committee headed by the Prime Minister, the leader of opposition and a minister nominated by the Prime Minister. Thus, the Chief Justice of India as a member of the selection committee was removed and in his place a nominated minister by the Prime Minister put in place to make the selection committee having the majority of 2:1 for the government. However, the selection committee has power to consider names outside the shortlisted five candidates. 

4. According to section 5 of the Act, the CEC and ECs should have held the rank of secretary to the Government of India; shall be a person of integrity : have knowledge of and experience in management and conduct of elections. 

5. The new Act specifies the terms of service of CEC and ECs. They are not eligible for re-appointment. Where an election commissioner is appointed as CEC, his term of office shall not be more than 6 years in aggregate as the EC and CEC. 

6. CEC can be removed from his post only through the process of impeachment by the Parliament by special majority. However, ECs can be removed by the President of India only on the recommendation of CEC. But it is not mandatory for the President to accept the recommendation of CEC. For example, during the UPA Government, the CEC recommended the removal of EC Naveen Chawla but the President did not accept his advice. 

7.Salaries and allowances of CEC and ECs cannot be varied to their disadvantages during the term of their offices. CEC and ECs enjoy the rank of the judge of the Supreme Court. 

Functions of the Election Commission

The functions and powers of the EC of India are : 

1.  Conduct of the election of the Lok Sabha, Rajya Sabha, State Legislatures, the President and the Vice President of India. 

2.  It prepares and revises electoral rolls and registers all eligible voters. 

3. It grants recognition to the various political parties and allocates them election symbols. 

4. It has also power to advise the President in matters relating to the disqualifications of MPs and MLAs.

5. It issues the model code of conduct during elections for political parties so that no one indulges in unfair practice or there is no arbitrary use of powers. 

6. It notifies dates of election

7. It determines the territorial areas of each constituency on the recommendation of the delimitation commission.

8. It cancels polls in case of booth capturing, rigging, violence and other irregularities. 

9. It advises the President as to when the election can be held in a state which is under the President’s rule. If it is not sure to conduct free and fair elections, it may recommend to the President for the extension of the President’s rule in that state. 

10. It registers political parties and grants them the status of national or state political parties. 

11. It promotes voter awareness and increases voter’s participation. 

12. To sum up, ECI is vested with the power to superintend and control elections in India. However, it is not entrusted with the elections of municipal corporations or Panchayat bodies. Elections of these bodies are conducted by the State Election Commission. 

 

How will the Election Commission be strengthened ?

1. The new Act of 2023 has given overriding power to the President in selecting CEC and ECs. There is need to make the selection process of CEC and ECs more transparent by including the PM, the leader of opposition of Lok Sabha and Rajya Sabha, Chief Justice of India and a Cabinet Minister so that the executive or the Government of the day must not have absolute power with regard to the selection of CEC and ECs. 

2. There is a need to give equal protection to ECs and CEC. While CEC can only be removed through impeachment by both Houses of Parliament with special majority, ECs can be removed by the President on the recommendation of CEC. ECs should also be removed only by the process of impeachment by the Parliament with special majority. This would give ECs more independence in their functioning. 

3. Model code of conduct should be incorporated into election laws so that its violations can be dealt with sternly. 

4.  ECI should have more teeth to deal with criminalization of politics.

5. More election tribunals should be established for the quick disposal of election related cases. 

6. The ECI should collaborate with tech companies to track and remove fake news affecting elections. 

7. There is a need to implement state funding of elections so that the dependence on corporate donations is reduced. 

8. The ECI should ensure that there should be a level playing field both for ruling and opposition parties. 

9. The ECI should ensure that corruption, muscle power, bribery and wealth power do not come into play to give a candidate a winning edge. 

10.  It should also ensure that no parliamentary or legislative constituency go uncontested as it happened in the case of Surat in the last Parliamentary election 2024. 

11. The ECI must ensure that there should not be discrepancy between votes polled and counted as happened in the case of recently held legislative election in Maharashtra. 

Conclusion

1. The ECI is one of the pillars of robust democracy. The strength of democracy depends upon the effective conduct of elections. It is the bounden duty of ECI to ensure transparent, credible and violence free elections throughout India.

What is the reciprocal tariff ? Why has the US adopted reciprocal trade ? What would be its impact upon India and the world?

 Why is it in the news? 

1. The United States President Donald Trump declared that he would adopt reciprocal tariffs in international trade. It means the end of existing trade rules. The reciprocal tariff would come into effect after 1st April ,2025. 

2.It should be noted that countries have been imposing tariffs on imported goods from foreign countries. However, since the end of World War II, the world has moved towards free trade. There has been consensus among developed countries that free flow of goods and services among countries is mutually beneficial for all. A world body called GATT (General Agreement on tariff and trade) was established in 1948 to look into international trade practices. 

3.In 1995, GATT was replaced by the WTO which was given more power to enforce trade rules. It should be noted that although the developed countries gave emphasis upon free trade, they ensured that developing countries should not be flooded with cheap items from the developed countries. The logic was simple. That the goods and services produced by developing countries would not be matched and cannot compete with that of developed countries. So while the tariffs in the developed countries were kept at low, the tariffs for the developing countries were kept at high level. For example, the average duty levied by the US in 2023 was 3.3% followed by Japan less than 4%, EU 5%, Russia 6.6%, China and South Africa more than 7% , Brazil 11% and India 17%. 

4.The higher tariffs in India are on account of high tariffs on agricultural products to protect farmers. While import duties on agricultural products were at 39%. It was only 13.5% on non-agricultural products in 2023 (Source : The Hindu). The high import duty on agricultural products is meant to protect our farmers who cannot compete with subsidised US agricultural products. 

What is the reciprocal tariff?

The new reciprocal tariffs announced by President Trump want to do away with this exception of providing higher tariffs on imported goods into developing countries. It means that if a country has imposed 20% tariffs on imported goods and services from the US, the US Government would also impose 20% tariffs on goods and services exported from that country into the US. It is also suggested that if a country has given subsidies and other incentives to promote exports, then the exported goods to the US will be levied additional duties. For example, the Indian Government has disbursed $1 billion to companies between 2022-24 under the production linked incentives to boost exports of mobile phone handsets. The new reciprocal tariffs adopted by the US would take into account these subsidies while calculating the additional import duties. 

Why has President Trump enforced reciprocal trade? 

1.The US trade deficit with the rest of the world has gone to $1 trillion annually. While China enjoys a trade surplus of more than $1 trillion annually, the US has a huge trade deficit with China, India, EU, Mexico, Canada, Japan, and South Korea. The US wants to do away with the tariff differential with different countries whose goods imported into the US cause trade deficits. Following are the tariff differential with the US against India, China, Canada, Mexico and Vietnam. 

Tariff Differential with us (% PP, Weighted Average, 2022)
Products	India	China	Canada	Mexico	Vietnam
Animal	30.2	9.3	29.3	28.9	9.4
Chemical	10.2	2.4	0	3.3	1.2
Footwear	17.2	-5.8	0	11.9	-8.9
Fuels	6.8	2.6	0	0	0
Hides and skins	3.0	-4.6	0.3	4.7	-6.4
Machinery	6.0	1.1	0	0	2.0
Metals	7.8	1.7	0	5.0	0.6
Minerals	8.6	0.7	0	0	0.6
Vegetables	20.5	13.2	0.2	10.5	4.3
Transportation	14.4	9.8	0	6.9	4.0
%pp=percentage points , Source : Ministry of Commerce and Industry

For example, the US imposes 2.5% tariff on European cars while the EU imposes 10% tariffs on US cars. Earlier, the US removed India from its GSP  (Generalised System of Preferences) leading to higher tariffs on Indian exports of goods like 25% tariff on Indian steel and 10% on aluminium.  Thus, the US wants to protect domestic jobs and domestic industries like steel and aluminium because these industries are struggling in the face of cheap steel and aluminium imported into the US. It puts 25% tariffs on all goods and services imported into the US from Canada and Mexico and 10% tariffs on Chinese goods and services imported into the US. China retaliated by levying 15% duties on coal and LNG and 10% on oil and agricultural equipment imported from the US.  

2. Critics are also of the view that President Trump wants to offset the loss of $460 billion annually on account of reduction in corporate and personal income tax under tax cuts and job act of 2018 during his previous tenure and this act is to expire in 2025. President Trump wants to extend those tax cuts permanently. Since the US imports around $4 trillion of goods annually, the collective import share of Mexico (15.6%), Canada (12.6%) , China (13.5%) and EU (16%) accounts for 58%. An increase of 25% tariff on Canadian, EU and Mexican goods along with 10% additional tariff on imports from China, plus 10% duties on energy imports from Canada would raise $480 billion annually, thereby financing the entire annual cost of extending the tax cuts. 

What would be its impact upon India and the world?

1.Indian steel, aluminium, textile products exported to the US would become expensive leading to the reduction of export volume of these items to the US. 

2. Since, the US is the largest trading partner of India and India had $45 billion surplus trade in 2024, the reciprocal tariff would hit the Indian market. As of now, India exports primarily engineering goods, electronic goods, gems & jewellery, drugs and pharmaceuticals and petroleum products. On the other hand, India imports from the US primarily minerals, fuels and oils, precious and semi-precious stones, nuclear reactors, boilers, electrical machinery and aircraft and its parts. If the US insists upon reciprocal tariffs, the biggest casualties would be the agricultural sector and this sector would be flooded with cheap American agricultural products.  Secondly, the US may insist upon India to buy more mineral fuels and oils to offset the trade deficit. This would put more pressure on the demands of the US dollar, causing further dipping of Indian rupees vis-a-vis the US dollar.

3.Since the EU is the second largest trading partner of India after the US, any increase in tariff of goods & services of EU imported into the US would give an opportunity to India to increase its exports to the EU. 

4.Critics also point out that the US-China trade war in the long run will benefit Indian exports to the US. 

5.There would be disruption in the supply chain causing inflation in different parts of the world. Secondly, China, EU, India and other countries would retaliate by raising tariffs on goods and services imported from the US. 

6. There would be higher prices of consumer and capital goods faced by people worldwide. 

7. Countries would sign free trade agreements and trade pacts with other countries to lessen their reliance upon the US. 

8. The trade war between the US and China would benefit Brazil, Mexico, Vietnam and India. 

9. The biggest sufferer would be the US farmer, the US export of farm produce amounts to $191.2 billion in 2024. China, Canada and Mexico import a maximum chunk of farm produce amounting to $91 billion or 47.6%. If these countries retaliate and stop importing US farm produce like soyabean, cotton, coarse grains, almonds, walnuts, wheat, dairy products, forest produce, tree nuts , beef, corn etc. the biggest beneficiary would be Brazil, Argentina, Paraguay, Ukraine, Russia. Although the US farmers constitute less than 2% of the US population, they exert more political influence in American politics. So any set back to the US farmers would drastically reduce the popularity of President Trump. 

 

What is the way out for India ?

1.Diversification of export markets. This would reduce the reliance on the US.

2. Boosting of domestic manufacturing.

3. Free trade agreements with various countries so that Indian goods and services get access to those markets. 

4. Lobbying with the US for trade concessions.

5. India should simultaneously raise the issue of unfair practices before the WTO. 

Conclusion

India must not buckle under the pressure of the US. It must safeguard its agricultural sector, otherwise farmers of India would be hard hit. It should diversify exports to reduce dependence upon the US. It should further lay stress upon the growth of local industries to minimise trade deficits.