Comparison between India and China’s population growth and consumer spending

Source: The post Comparison between India and China’s population growth and consumer spending has been created, based on the article “India-China consumption comparison” published in “The Hindu” on 21st May 2024.

UPSC Syllabus Topic: GS Paper 3-Economy-mobilisation of resources, growth, development.

Context: The article compares India and China’s population growth and consumer spending. It notes that although China’s economy is larger, India spends a larger proportion of its GDP on consumption, and its spending is growing faster than China’s.

How does India‘s population growth compare to China‘s?

In 2023, India surpassed China to become the world’s most populous country.

China’s birth rate is declining at 6.4 births per 1,000 people, and its total fertility rate is around 1%. China experienced negative population growth for the first time in six decades.

India’s population, despite reaching replacement levels with a total fertility rate of 2.1, is expected to grow and peak around 2060.

How does consumption differ between India and China?

Percentage of GDP: India’s consumption expenditure is higher relative to its GDP compared to China. India’s Private Final Consumption Expenditure (PFCE) makes up over 58% of its GDP, whereas in China, PFCE accounts for only 38%.

Government Consumption: In India, final consumption including government expenditure constitutes 68% of GDP, compared to 53% in China.

Trends Over Time: From 2018 to 2022, India’s PFCE grew from $1.64 trillion to $2.10 trillion, showing steady growth. Meanwhile, China’s PFCE was $6.6 trillion in 2022, down from $6.8 trillion in 2021, indicating a recent decline.

Per Capita Consumption: Despite India’s overall PFCE growth, China’s per capita PFCE remains higher, widening slightly from ~3.0 times that of India in 2018 to ~3.1 times in 2022.

How does Purchasing Power Parity (PPP) affect consumption?

Closing the Gap: In Purchasing Power Parity (PPP) terms, the consumption expenditure gap between China and India narrows significantly compared to nominal figures. China’s PFCE is about 1.5 times that of India, while its GDP (PPP) is approximately 2.5 times larger.

Recent Trends: Despite a wider economic disparity, in 2022, the gap in PFCE decreased from about 1.66 in 2020 to 1.55, indicating a relative improvement in India’s purchasing power.

Exchange Rate Impact: China saw a marginal increase in its PFCE by about $0.7 trillion due to improved yuan-dollar PPP exchange rates, while India added a trillion dollars to its consumption expenditure despite a worsening exchange rate, showcasing robust consumption growth under challenging conditions.

What are the differences in spending categories?

Basic Needs vs. Advanced Services: India’s higher spending on food, clothing, footwear, and transport is typical of a developing market. China, showcasing characteristics of a more developed market, spends a higher percentage of its expenditure on housing, white goods, recreation, education, and healthcare. This distinction is apparent as China’s spending on food and beverages, though the largest segment, is declining as a percentage of total expenditure.

Expenditure Proportions: The article mentions that India spends around half of what China spends on food, transport and communication, and clothing and footwear. This comparison is significant considering India’s economy is a fifth the size of China’s but manages to spend nearly the same percentage on these key sectors.

Question for practice:

Evaluate the key differences in population growth, consumer spending patterns, and their implications for economic development between India and China.