21st May 2024 (15 Topics)
India-China consumption comparison
Context
In 2023, India overtook China as the world's most populous country, a milestone underscored by contrasting demographic trends. While China experienced a declining birth rate and negative population growth for the first time in decades, India's population continued to grow, albeit at a slower pace than before.
Comparing Consumption Figures
- When comparing consumption figures between the two nations, it's essential to consider Private Final Consumption Expenditure (PFCE), which measures household and non-profit institution spending on goods and services.
- India's PFCE contributes more to its GDP compared to China, indicating a higher dependency on consumption for economic growth.
- Despite China's larger economy, its PFCE is only about 3.5 times that of India's, suggesting a relatively higher reliance on consumption in India. Additionally, while China saw a significant increase in PFCE in recent years, India's figures have been steadily rising.
- While PFCE contributes more than 58% to India’s GDP currently, it contributes only 38% to China’s economy.
- Additionally, the final consumption, which also includes government consumption expenditure, constitutes 68% of the GDP for India and 53% for China
Nominal vs. PPP Figures
- It's crucial to note that nominal figures alone may distort the comparison due to differences in the cost of living.
- PPP figures provide a more accurate comparison by adjusting for these discrepancies.
- In PPP terms, China's PFCE is approximately 1.5 times that of India's, narrowing the consumption expenditure gap between the two countries.
Expenditure by Categories
- India's consumption pattern reflects characteristics of an underdeveloped or developing market, with higher spending on essentials like food and transportation.
- In contrast, China's consumption basket resembles that of a more developed market, with higher expenditure on housing, education, and healthcare.
Concluding Thoughts
India's growing consumer class and increased spending could make it an attractive destination for foreign businesses, especially amidst the "China+1" narrative. However, whether India can leverage this advantage to position itself as a preferred destination remains to be seen.
In conclusion, while India's population surpassing China's marks a significant demographic shift, its implications for consumption patterns and economic growth warrant careful consideration. Understanding the nuances of consumption expenditure between the two countries is essential for businesses and policymakers alike.
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