Will Indian consumers pick up where the Chinese leave off?

Private consumption in China is one of the lowest in the world.

The majority of spending from the public sector goes to infrastructure development and state assets.  And private spending is curtailed, since families must make provisions for private insurance, healthcare and retirement savings.

So with a more bottom-up approach to development, is India in a better position to spend?  If one compares the urban-rural disparity between the two countries, India seems to be in a much more favourable position.

The rural half of China is falling behind. Back in the mid-1980s, the mainland’s urban-rural income ratio was 1.8. It now stands at about 3.5. Although per-capita incomes have risen, an estimated 400 million mainly rural residents have seen net income stall or decline over the past decade.

In India, they’ve been halved. The urban-rural income gap has steadily declined since the early ’90s. Over the past decade, economic growth in rural India has outpaced growth in urban areas by almost 40%. Rural India now accounts for half the country’s GDP, up from 41% in 1982.

World Bank studies show that rural China accounts for only a third of GDP and generates just 15% of China’s growth. Meanwhile, rural India is chipping in about two-thirds of overall growth.

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