About Australia and India
Australia which is officially known as the Common wealth of Australia is a country which comprises the continent of Australia, island of Tasmania and some other small islands. By total area it is the sixth largest country in the world and it is also known as the 13th largest economy with the 9th largest per capita income. India which is officially known as Republic of India is a country in the South Asia which is seventh largest by area. India is a developing country but one of the fastest growing countries in the world. In the sections below we compare the economies of Australia and India.
In this report we compare Australia and India based on their economic performance. The economic growth of countries is an indicator representing the overall performance of the countries and how fast an economy is growing. In this report we consider many other such indicators which are endogenously related to economic growth and compare the differences between India and Australia.
Gdp Growth Rate:
One of the major indicators of economic performance is the Real GDP. GDP or gross domestic product is the total amount of final goods and services produced in an economy. The two types of GDP is nominal GDP which is measured based on current prices and real GDP which is measured based on some base price of some year. Thus real GDP diminishes the trend and effect of increasing prices or inflation and is a better measure of economic performance (Samuelson et al, 2010). In the figure below we see the real GDP of Australia from 2010 to 2015.
Australia being a developed country had already achieved a higher standard of living and the growth rates of the country had also gone down compared to a developing country like India which had been growing at a fast pace for the last 5 years. As we see in the figure below, the Real GDP of Australia and India since 2010 to 2015. We see that the GDP figures of India had been higher than that of Australia over this period. We also see that the trend line of Australia is flatter than that of India indicate very small growth rates of GDP over the years unlike India for which we see that the trend line is steeper indicating high rates of growth.
But a more suitable measure of standard of living which actually justifies why Australia is developed and India a developing country is the GDP per capita which is the real GDP divided by the total population (Lipsey et al, 2011). Thus GDP per capita which takes the population into consideration is a better representation of the income and standard of living of the people. As the graph below shows the GDP per capita of India is far below that of Australia. In 2010 GDP per capita of India was 1345 USD which rose to 1752 USD in 2015. As for Australia, GDP per capita was 51846 USD in 2010 and 64689 USD in 2015. This is obvious because population in India is about 1.3 billion whereas that of Australia is just 23789752. Thus, even if real GDP is lower in Australia it is divided into a smaller population resulting in higher income in the hands of the people whereas the high GDP of India is still not enough for its fairly large population and leads to lower income in the hands of the people which consequently reduces the standard of living of the people (Mankiw, 2014).
Real GDP Growth Rate Comparison
The comparison of growth rates between the countries becomes more evident as we consider the graph given below of annual growth rates since 2010 to 2015 of both the countries. As we see in the graph below, the growth rate of India is at a higher level than that of Australia. In 2010 the growth rate of Australia was 2% whereas in the same year India achieved a very high GDP growth rate of 10%. Hence, at this period when Australia already highly developed, India a developing country was set to achieve very high growth rates. Over the years the Indian economy experienced the lowest growth rates of less than 6% in 2012 whereas in the same period Australia’s highest growth rate in those 5 years was achieved as 4%.
It is economically believed that a high growth rate signifies higher GDP which represents the rise in aggregate demand or supply in the economy which can be due to the rise in consumption expenditure, investments, government expenditure and net exports. A higher GDP implies growth in employment and greater income in the hands of the people which boosts the standard of living (Sowel, 2010). Hence economic growth has its implications and boosts the performance of several other indicators which in turn also causes GDP to rise, thereby representing an endogenous relationship.
If we notice other factors which represent the health of both the nations it gives us a clearer picture. For instance, if one would stay in Australia they would spend 100 times more money on health care compared to India. This is because the per capita health expenditure in Australia is $61400 USD compared to India’s $61.40 USD. These figures include both public and private health expenditures as well as out of pocket health expenditures. The high health care expenditures do show that Australian population demands for more health care needs. This can also be attributed to the fact that Australia being a developed nation can spend more on health care as a share of its GDP and on the technology and health care infrastructure along with the research and development in health care. Another reason is Australia’s growing aged population making population aging a rising concern for the country. The proportions of older people in Australia who are 60 years above are continuously growing and are being dependent on the working age population. Due to the rising health concerns of the older proportion it demands for more health care needs which leads to higher health expenditures. India on the other hand being a younger nation with the old age population being much less than Australia, health care expenditures are attributed to the poor health of citizens due to poverty and lack of sanitation in rural areas.
GDP per capita Comparison
Capital Formation:
Coming to a proxy of the investment expenditure in both the countries we consider the figures of Gross capital formation. Gross capital formation in Australia in 1970 was 14.5 billion USD which was greater than that of India by 18.9%. In 2015, capital formation in Australia was 317.6 billion dollars whereas in India was 685 billion dollars and hence India’s capital formation was 2.2 times higher than that of Australia. Therefore higher capital formation in India boosted its real GDP.
The high population in India also implies a higher labor force and with lesser GDP per capita it is evident that there is unemployment. The graph below shows the unemployment rates in Australia is higher than that of India but what is to be considered is the total labor force in Australia is also smaller than that of India. The labor force of India in 2015 was 501607980 whereas of Australia was 12514352. Hence, in 2015 India’s unemployment rate of 3.49% constituted about 17506118 individuals whereas Australia’s unemployment rate of 6% constituted of 750861 individuals. Though relatively the unemployment rate in Australia is higher considering its already smaller population, number of individuals with no jobs in India is far higher.
Inflation:
As for the rise in prices, we see in the graph below that inflation rate in Australia is much lesser than that of India. In India prices are seen to fall since 2013 but are still at a high rate of 4.9% in 2015 compared to Australia’s 1.5% in the same year. Australian prices which are seen to be rising at a really slow rate also imply the slow growth in Australia.
The role of governments is crucial for the development of countries. The government stabilizes the economy and is responsible for the political health of an economy. As it is known political stability is a major concern which determines the allocation of resources, working of the economy and its various sectors and the ultimate development of an economy.
Here too, for India and Australia the role of the government had been a key determinant. In India the government of the country is officially known as the Union Government of India or the Central government which is the governing authority of the 29 states and 7 union territories of the country. India’s struggle for independence had been historic. Following that many post-independence leaders had were influenced by socialist ideas and advocated government intervention to guide the economy. The extensive controls over specific industries through the Industrial Policy Resolution acts and The Essential Commodities Act, along with the large public sector and many other government programs contributed substantially to the growth of the administrative structure in of the economy. The extensive controls did create a lot of inefficiency with businesses complaining about the prolonged time needed to just get the government approval to start a business in the country. Along with this many observers also observed extensive corruption in the huge bureaucracy. Economic reforms changed the track as the government abolished many licensing regulations since 1985. Since, 1991 more new economic policies had been introduced. Reforms include making currency partially convertible and currency devaluations, reduced import duties on capital goods, reduced quantitative restrictions on imports, liberalized interest rates, decreases in subsidies, abolition of licenses for most industries, the sale of shares in selected public enterprises, and tax reforms.
Capital Formation Comparison
In the present times, Indian government had been driving the development of the country. The Make in India initiative of the government is moving ahead with the primary goal of encouraging multinational and domestic companies to manufacture their products in India. Apart from this there had been several other social safety net programs which are adopted for the improvement in the livelihoods of the rural people and to eradicate poverty while at the same times promoting financial inclusion.
Australia is a constitutional monarchy with a system of government that is based on a tradition of liberal democracy. Its economic performance had been a standout among advanced economies for several decades. The two basic economic problems that the government aims at solving are inflation and unemployment. The government tries to solve these through fiscal and monetary policies as well as social programs. With the help of contractionary fiscal policies the government increases taxes which siphon off money from the economy reducing aggregate demand and bringing down prices. The same when done through monetary policies it takes place by open market operations of buying bonds or increasing interest rates. The government is also concerned with the distribution of wealth and allocation of resources such that all the sections of society are able to earn some sort of income.
The high GDP growth rates of India close to 8% in 2015 had surely had an impact on the country. Since its independence the economy has grown significantly, expanding to Rs. 57 lakh crores from a mere Rs. 2.7lakh crores with the foreign exchange reserves crossing $300 billion which enabled the economy to fight external shocks. But the fast growing population and demand of the country needs more work to be done for development. After the global financial crisis the economy was hit and experienced slowed down growth but since 2012 to 2015 a rise in economic growth is seen again. Gross savings in the country is seen to be highest in 2010 with 38% which went down to 32% in 2015. Food grain production has also seen a surge doubling over the decades after the colonial rule. The country has also progressed significantly in terms of building infrastructure and roads but it needs a wider road network to let the fruits of high growth flow into the rural populations. India has seen a widening gap in trade balance as its imports shot up higher than exports over the years. In 2013, it experienced a current account deficit of 4.8% of the GDP which fell to 1.7% in 2014 when the government clamped down gold imports. During the end of 2014, India’s external debt rose to $440 billion because of the increase in the non-government debt (Chakraborty et al, 2010).
Unemployment Rate Comparison
The growing population of India had been a major concern although its effects are boon or bane is still ambiguous. The high growth of population requires a greater per capita income which needs 7.2% of the national income to be used for investments. The composition of population also affects the capital formation in the country as with high birth rates and low life expectancy signifies higher number of dependent in the country which leads to a fall in the rate of capital formation (Chakrabarty et al, 2008). The growth of population also causes a food problem because shortage of food grain for the vast population hampers development. Rising population had also been the major reason of poverty in India and a low standard of living along with high inequality. Hence, a major goal of policy makers in India in the present years is inclusive economic growth (Shrivastal, 2013).
The economic growth in India had not been the same after the global crisis but is comparatively at a faster pace. The economic growth has had significant effects on the society. A few of the benefits is the growing employment opportunities and hence much less unemployment in the last few years. Higher consumption expenditures and savings in the last few years along with high capital formation are also some of the benefits which again create a virtuous cycle of growth. Higher economic growth has also brought forward higher tax revenues for the government to improve health care services, infrastructural needs and also education attainments. In overall economic growth in India has helped in decreasing poverty and increasing the standard of living of the people but considering the growing population in the country with high dependents a lot of work is yet to be done.
Australia’s average GDP growth rate since 1990 to 2000s had been 3.4%. Compared to other south East Asian countries the process to independence was more peaceful and hence, has had no such negative impact on the country. Growth was seen to be highest during the 1920s to 1980s. Since the 1980s the economy has seen continuous liberalization which leads to further economic development. Its per capita GDP is higher than UK, Canada, Germany and France in terms of purchasing power parity (Murphy, 2017).
It is believed to have grown uninterrupted by recession for 25 years. Strong population growth had been a boost to this along with other past reforms and policies. The GDP per capita is also remarked as healthy by economists and are expected to stay same for the next few years. The increased population growth did lead to high employment levels but also lead to addition sin the labor market which has increased unemployment. Australia’s labor market underutilization rate is found to be 14.3% which shows that economy is operating below its capacity and there is an output gap which as economists say has implications for wages and inflation. The dwelling price to income ratio had also been high reflecting the low interest rates and strong population growth. The high rates of immigration had also put an upward pressure on housing prices.
Inflation Rate Comparison
According to the 2011 Credit Suisse Global Wealth report, the nation has an average wealth of US$222,000 which is globally the highest and almost four times the amount of each US adult. The proportion of with wealth above US$100,000 is the highest of any country – eight times the world average. Average wealth was $US397, 000, globally second-highest after Switzerland. The 2014 issue of the wealth report shows that this reflects a large endowment of land and natural resources relative to population, as well as being a result of high urban real estate prices (Scutt, 2016).
There had been a significant increase in Australia’s terms of trade during the rise in the commodity prices since 2000. The currently had seen large current account deficits for more than 50 years. Inflation had been around 2 to 3% with the base interest rate around 5 to 6%. The service sectors of the country constitute about 69% of GDP. Unemployment in Australia is mainly due to structural and frictional causes with 11.6% being the youth unemployment in 2013 (Scutt, 2016).
In 2016, the government had predicted budget deficits to be larger in the following four years and hence, bringing the budget to balance had been a major concern for the government. It has been 99 quarters since the Australian economy has experienced a technical recession which is defined as two quarters of negative real GDP. According to the Australian Bureau of statistics, the major forces affecting growth during the quarter came from exports and household final consumption expenditure which contributed 1.0 % and 0.4% respectively. The real net national disposable income which is considered as a more reliable measure of standard of living for Australia has seen to had increased by 0.2% in the first quarter of 2016 which is not as strong as the real GDP would suggest (Scutt, 2016).
Conclusion:
Thus, from the above sections we saw that how India and Australia had been performing over the years. India being a developing country is facing many developmental issues with the growing population and low per capita incomes that is deteriorating the standard of living of the people (Guru, 2010). But the nation is seen to grow significantly although population growth had also been high and it had developed significantly over the years as poverty got reduced, more infrastructure development occurred, consumption expenditures and food production increased along with increased investments in the booming and growing business environment in India. India has still many policy concerns and a long way to go with its aim of inclusive growth where each makes sure fruits of the high economic growth is utilized and enjoyed by all the sections of the society and hence, the rich wouldn’t just get richer and the poor poorer. On the other hand, Australia unlike India which did not experience any such major negative impacts as it moved towards independency could recover much easily and had sustainably grown over the years. Australia is seen to grow without recession for 25 years but is soon entering stagnant economic growth. The country is believed to be operation below its capacity provided its strong population growth and the benefits from it.
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