Both India and China began to reform in the early eighties, with the Indian reforms being very slow until 1991-92 after which they 'take-off'. While there are many differences the crucial difference is that China adopted the same Export Led Growth (ELG) policies of the successful East Asian economies - South Korea, Taiwan, Singapore, Hong Kong and Thailand, while Indian policies have been distinctly laissez-faire. Orthodoxy’s false understanding of ELG (the East Asian trade strategy), which was as far from laissez faire as can be imagined, is the root cause of the failure of other diversified economies in their pursuit of open door policies. Purposeful and massive under valuation of their currency was part of the East Asian strategy, which provided for simultaneous export growth and import substitution. Simultaneous import substitution and export production is theoretically possible for economies with idle resources, with the introduction of third non-traded goods sector. ELG can therefore with compatible with little or no protectionism. This aspect of the East Asian trade strategy has been poorly understood.

India's reforms have resulted in considerable discrimination against the manufacturing enterprises. Exports have grown far more slowly than was otherwise possible. The more equal distribution of income in China, and the differences in the macroeconomic policies explain most of the other observed performance differences between the two countries on aspects such as the inward flow of FDI, investment, savings, growth of particular industries. Some of the crucial dimensions of the macroeconomic policies consistent with ELG in the context of China are brought out. The character of FDI itself, which differs sharply between the two countries is related to the differences in the macro economic policies. The Chinese and the East Asian success extends the notion of 'late industrialisation' to one where external demand (along with domestic demand) is realised for the high speed expansion of manufacturing ELG. The supply side of the same strategy is build on exploiting ‘idle’ and underutilised labour which alone is capable of generating the vast gains from trade. Standard models gains from trade are incomparable small in relation. A significant part of the gains do accrue to the destination countries in the form of falling prices so that there are few political difficulties in the pursuit of ELG even by large countries like China. Thus ELG is more akin to a Lewisian process that employs previously underemployed labour for tradable goods production with rising (to high level) investment rates. India is more than ripe for ELG. It can ignore the lessons from the Chinese experience only at much cost to its growth. High growth in excess of 9% is possible with ELG since even with conservatism it is achieving 6%. This paper also argues that the mistaken pursuit of laissez-faire as being export led growth in India would only result in the further hollowing out of manufacturing. 

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