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This article presents a comparative economic history of China and India and their response to economic challenge. Together, the population of the two countries comprises one-third of the world population. Today the two countries are economically in an underdeveloped stage, with low per capita income but with several impressive scientific and technological achievements. Many of the facts and issues about these two countries are gigantic, that is, population, size, history, and even the problems and complexities. But China and India did not respond to the forces of the industrial revolution that in Europe transformed nations from poor peasant societies to modern developed ones. During the course of a century and a half they failed to exploit the epochal innovations of modern economic growth. These two then-advanced nations failed to meet the challenge of modern economic growth. At the same time, both Governments did not have a wide consensus supporting them, and hence, even in the raising of resources to meet administrative expenses, coercion had to be exercised. By 1950, these factors led to a major transfer of power in the two countries. For different reasons, but with the same result, the contact of China and India with the West remains a tragic case of missed opportunity.

The article presents information on retail price index in the peoples republic of China. There is lair agreement among scholars familiar with the economy of the Peoples' Republic of China that there is stability in the retail price index. It is admitted that this index is biased downward because there were years of high black-market prices. However, they say that such issues are not central because, the basic necessities were available and rationed at stable prices, the index is biased downward when prices are rising, and biased upward when prices are falling. There are two distinct problems with any price index, meaning and significance of prices and problems associated with choice of weights, scope, and bias in the index. China has had natural disasters (1956-1957, 1961, 1962) technological regressions (1958), capital flows abruptly cut (1960, 1961, 1962), social institutional upheavals (1955-1956, 1958) and several other disequilibrating shocks, along with a highly producers' goods production-oriented planning. Nevertheless, it has in the past been claimed that China has enjoyed a price stability maximum rate 1.3 per cent per year, 1952-1963, according to the official index that is almost unknown in any other developing country, let alone a huge developing country with several constraints. If this claim had been proved conclusively, then this achievement itself would be overwhelmingly impressive. Evidence, however, does not support the claim.

The results presented in this paper are a time series of personal savings is, which is well explained by the dynamic savings function. This model was previously formulated, but tested only for the U.S. and Canada. The steady-state or long-run savings function implicit in the dynamic formulation, fits remarkably well to international cross-section data. The coefficients of the long-run savings function, as obtained by application of least squares on the function, is statistically equal to the coefficient obtained indirectly from the dynamic savings function. This implies that both dynamic and steady-state savings behavior are adequately described. A few pitfalls in estimation of economic relationships when employing cross-section time series data are revealed. The article also shows that the long-run savings function has been supplemented by some additional conditions. Therefore, the present attempt must be regarded as a synthesis of two economic theories. One can acquire the benefit of more observations per country than in deriving empirical results.

In a recent article in this journal, P. D. Ojha and V. V. Bhatt attempted to find out "whether the conclusion reached by Simon Kuznets about greater inequality in underdeveloped countries is borne out in the case of India." The authors concluded that India did not substantiate Kuznets' generalization. The purpose of this article is to argue that the authors' analysis of India can be seriously questioned. On the basis of extensive international cross-section and time-series evidence, Kuznets concluded that over a long period of sustained economic growth in which an underdeveloped nation matures to a developed nation, the distribution of income first widens, then stabilizes and finally narrows. Estimates indicated that at the present level of development of countries, the inequality was narrower in developed countries than in underdeveloped countries. In the process of analyzing the data and the mathematical relationship between the intersectoral inequality and the size distribution, the article argues that Ojha and Bhatt have ignored the biases in data and by virtue of their estimation procedure have underestimated the inequality. Since their conclusion about inequality in India is entirely based on their estimates of the national size distribution, it is not an acceptable conclusion.

The interrelation between changes in the economic structure, i.e., industrial distribution of income and labor force, and the size distribution of income is studied in this paper in a case study of India (1961–1960). The change in the size distribution of income is the sum of changes due to (1) inter-sectoral factors and (2) intra-sectoral factors. The need for this distinction is emphasized by the result obtained for India, that 85% of the changes in the size distribution may he assigned to inter-sectoral factors, and only 16% to intrasectoral factors. Since the inter-sectoral factors are significantly influenced by changes in the industrial distribution of income and labor force, our result points out a relation between economic growth and the size distribution which quite often is overlooked in studies of the size distribution. The results obtained in this paper support several cross-section results of Professor Kuznets. In particular some of these are: (a) inter-sectoral inequality in the economic structure widened with economic growth, (b) the inequality in the size distribution of India widened, (c) the level of inequality in India is higher than in any of the eight developed countries considered. [ABSTRACT FROM AUTHOR]