India-China: Two very different development models

India currently has the per capita gross domestic product (in purchasing power parity) that China had in 2008; India currently has an annual growth rate of 7%, in 2008, China had a growth rate of 9% per year. But the growth models chosen by these two countries are very different: F rom the 1990s and until recently, China adopted a mercantilist model: growth driven by exports, with a large-scale exporting sector and the real exchange rate being undervalued, with the undervaluation being protected by the accumulation of foreign exchange reserves; India currently has a completely different model: growth is driven by domestic demand, the exporting sector is small, resulting in a chronic external deficit and, as a result, a continuous depreciation of the exchange rate. India has a low level of savings, unlike China, which limits its capacity to accumulate capital in industry to become an exporting country. Thanks to the mercantilist model, China has grown at the expense of other countries, by gaining market shares in global production, which has a provided it with very rapid development. India's growth is slower since it is domestic, without significant market share gains, but with a risk of currency crisis due to the country's external deficits.