Post-Independence, India chose the path of state socialism, while China went communist. To what extent, this affected the course of economic development in the two countries?

India got its independence in 1947 and the Peoples Republic of China came to existence in 1949. India followed the path of socialism, and China embraced communism. Today both India and China are among the fastest growing economies of the world.

India’s encounter with Socialism:

• India was the poster child of socialism in third world countries.
• India nationalized all the industries across sectors to include Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries.
• India aimed at capacity building and achieving self-reliance. As a result, the economy started breeding inefficiencies.
• India fell into the trap due to its overregulation resulting in license raj.
• In the early eighties, India began its efforts to deregulate the economy and the climax was the BoP crisis in 1991.
• India opened its gates to the capitalist world.
• India transformed from being a regulator to facilitator after the 1991 reforms. This made an immense contribution in shaping India as the fastest growing economy of the world.
• But India did not shun the path of socialism entirely. It is still driven by the idea of the welfare state.
• The idea of new socialism is equal opportunity which moved away from the earlier notion which emphasised on economic equality.
• Critics say that India is still burdened with its flawed approach towards socialism and cite Air India and Railways as an example of inefficient spending.
• Some also point that India’s saga with socialism in the 1950’s was not by choice but by force as the private sector did not have the capacity.

China saga of Communism:

• The communist ideology which was driving China made sure everyone had a job, but they earned little money, and there was little to buy.
• Supplies of basic commodities were so tight that residents were doled out ration coupons, required to go with cash to buy cotton jackets and clothes, grain, and cooking oil. No coupons, no transaction.
• Lack of funds resulted in starvation. Things began to change under Deng Xiaoping. The reforms initiated aimed at addressing some of the drawbacks of communalism to ensure there are enough resources at their disposal.
• The seismic changes brought about by the reforms and embraced capitalism in a state regulated manner. China oscillated between capitalism and puritanical communism.
• China’s reform movement aimed to improve the performance of state-owned enterprises (SOEs). The non-state sector, including private enterprises, became the engine for creating new wealth and employment as constraints on entrepreneurship and trade were gradually relaxed
• China model of state led capitalism shaped it as one of the most powerful nations of the world.

Both India and China mixed and matched capitalism with socialism and communism respectively. While the capitalism formed the flesh, the soul is still socialism and communism.

Topics: GS-I: Post Independence Consolidation and Reorganization