India’s Stock Growth vs. China’s Wage Rise: A Comparative Analysis

Source: The post India’s Stock Growth vs. China’s Wage Rise: A Comparative Analysis has been created, based on the article “India could not create mass prosperity. It’s not too late” published in “Indian Express” on 4th November 2024

UPSC Syllabus Topic: GS Paper 3 – Economy-growth, and development

Context: The article discusses why China grew wages but had weak stock returns, while India saw strong stock returns but low wage growth. To improve, India needs more manufacturing jobs, fewer farmers, and better policies for domestic production and employer support.

For detailed information on Macroeconomic differences between India and China read this article here

Why has China achieved strong wage growth but weak stock returns, while India shows the reverse?

1. China’s Wage Growth: China’s economic model prioritized manufacturing and moved millions from farms to factories, increasing productivity and wages. This transition lifted incomes as people moved to higher-paying, urban jobs.
2. China’s Weak Stock Returns: Public market shareholder returns in China have been weak, averaging about minus 13% over the last 20 years. This may reflect state-driven policies that emphasize wage growth over maximizing shareholder profits.
3. India’s Strong Stock Returns: India delivered strong stock market returns, around 1,300% over 20 years. This reflects a growing domestic market and investor-friendly policies.
4. India’s Weak Wage Growth: India’s job structure remains limited, with only 11% in manufacturing. Many people work in low-productivity, informal jobs, especially in agriculture, which hampers wage growth despite economic reforms.
5. Conclusion: China’s factory-driven growth supports wages; India’s stock-driven growth boosts shareholder returns.

How has India progressed since independence?

1. India has established the world’s largest democracy since 1947, overcoming challenges from its hierarchical society.
2. Life expectancy rose significantly from 31 years at independence to 68 years today.
3. India is now a middle-income country, although it faces limited social mobility — middle-income nations see 40% lower mobility than high-income ones.
4. Only 11% of India’s workforce is in manufacturing, with 45% in agriculture, leading to “employed poverty.”
5. According to the World Bank, only 34 middle-income countries (with a total population of 250 million, equal to Uttar Pradesh) have reached high-income status since 1990.

Why hasn’t India moved more workers from farms to factories?

1. India hasn’t moved more workers from farms to factories mainly because of regulatory burdens.
2. Excessive compliance requirements, frequent filings, and criminalisation make it hard for small businesses to grow.This “regulatory cholesterol” hurts small and informal firms more than big companies.
   3. It’s not due to shortages of land, labor, or capital: Land is ample; every household could get half an acre. Labor is available; 30% are in employed poverty. Capital is flowing; 50% of FDI since 1947 came in the last five years.

What should be done?

1. Reduce Regulatory Burden: Simplify compliance requirements that hinder small and informal businesses. Support initiatives like Jan Vishwas 2.0, Enterprise Digilocker, and the National Open Compliance Grid.
2. Strengthen Domestic Production Policies: Promote local production through tariffs and non-tariff barriers, as seen in the auto industry. This can reduce dependence on imports and build competitive supply chains.
3. Leverage Existing Skills: Utilize NEP 2020 and short-term training programs to ready workers for factory jobs; eight-week training suffices for tasks like cell phone assembly.
4. Promote Social Mobility: Address India’s low social mobility by creating high-productivity firms that support mass prosperity and reduce poverty among employed individuals.
5. Enhance Consumption-Driven Growth: Encourage industries tied to India’s domestic market, such as services, while complementing Make in India with “Make for India” strategies.

Question for practice:

Examine why India’s economic growth has led to strong stock returns but limited wage growth, while China has experienced the opposite.