សាកលវទិ្យាល័យបញ្ញា សាស្ត្រកម្ពុជា PAÑÑĀSĀSTRA UNIVERSITY OF CAMBODIA

ECONOMIC COMPARISION

BETWEEN U.S AND INDIA

NOVEMBER 10, 2014

SUBMITTED BY GROUP 2

1. AY SATHYA 44912

2. LENG LEAKSMY 36383

3. KOV RAKSA 25836

4. MOS THEN 44600

5. OUM RANY 49296

6. MENG MOLIKA 53505

SUBMITTED TO PROFESSOR: UM VUTHDARA

TERM PAPER FOR COURSE COMPARATIVE

ECONOMIC SYSTEM

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Table of Contents

I. Introduction .................................................................................................................................... 2

1.1. Background of Study ................................................................................................................. 2

1.2. Interesting in topic and Problem Statement .............................................................................. 3

1.3. Objective and Significant of Study ............................................................................................ 3

1.4. Scope of Study ........................................................................................................................... 3

II. History of Economic Development ............................................................................................... 4

2.1. United State of America ............................................................................................................ 4

2.2. The Republic of India ................................................................................................................ 6

III. Comparison of Economy ............................................................................................................... 7

3.1. Saving and Investment .............................................................................................................. 8

3.2. Education and Health Care .................................................................................................... 10

3.3. Export and Import ................................................................................................................... 12

IV. Discussion and Finding ................................................................................................................ 14

V. Overall Assessment and Study .................................................................................................... 15

VI. Conclusion and Recommendation .............................................................................................. 18

References ................................................................................................................................................. 20

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I. Introduction

1.1. Background of Study

Within the study of comparative economic system, we are concerning to the differences

of economic growth between United Stated and India. Due to the economic is an important

sector for country’s development, therefore, economic consider as a main factor for building

one state to become strong. The comparative economic system could be a guideline for state

to review and see their lacking point which they could be a guideline for state to review and

see their lacking point which they could have opportunities to take it for improving the state’s

capacity building by looking those developed countries of system they use and the policies

they created and implemented. By the comparing a system of economic, we can realize and

well understanding of which system is better than which one. And it could help to the

policymaker to reconsider when they created policy for implementing. Comparative

economic system is widely recognized to compare the system, the policies and the

institutions, which looking on the saving and investment, education and health care sector,

import and export the productivities, social capital (Democracy and Freedom), financial

capital like macroeconomic stability and diversity natural resources which consider as a

natural capital. We already realized that India and U.S used to have experience under the

colonization of Britain. And recently, we see that the increasing of economic growth rank in

the world of India and U.S are following up with each other. According to newspaper which

released on April 30th, 2014, India has pulled Japan to become the third largest economy

while U.S have been fail into the second largest economy of the world (Sneha Shankar 2014)

By concerning to this point, this research paper will find out the core factor that make

these both countries become the largest economy. As well as the paper will examine the role

of responsibility of government in term of economic growth. It is a basic essential to study

about the decision making is really affecting an influence to the whole countries.

In order to improve this quality of this paper for reader, we have to understanding about

that system, policies and institutions which state apply into their own nations. To help reader

more understanding, we also provide some basic concept relate with the economic theories

such as the Adam Smith, David Richardo, and some economist scholars who have different

view and perspective. We are not only providing the concept, however, we will also use

critical thinking to analyze those concept by applying into our research paper to become more

effective for readers.

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1.2. Interesting in topic and Problem Statement

We choose these two states to compare due to the fact that they were under England’s

colonization. However, U.S’s economy tends to develop much faster than India’s. Due to the

data, India is the world’s third largest economy in the world, while U.S is one step further.

Therefore, we would like to know the reasons behind this and want to study deeper.

Moreover, U.S and India are both a federal state and have the same economic system;

consequently, it is more likely to compare these states.

1.3. Objective and Significant of Study

We are going to examine and differentiate the two countries economic system which is

between United State of American and The Republic of India such as investment and saving,

education and import and export. There are three purposes for choosing this topic:

1. To define and observe the key role actors in leading each country's economy and

study about their system level (international level, organization level, state level,

and individual level).

2. This topic is chosen for the purpose of sharing information. Our group members

seek to share all of the knowledge that we know or get from the topic to all our

beloved classmates and the teacher as well.

About significant of this study is that we can improve our knowledge and know-how of

comparing system level, can transform our country from being low-developing country to

advanced one by following good example of the developed country's economic development,

and know the flow of mixed & free market processes.

1.4. Scope of Study

During our research, our group just mention in economic sector in order to compare and

to contrast between U.S and India to reach our objective and study. Especially, we are talking

about economy, it seems to be so broad, so our paper is just mention on Saving & Investment

about each country, Export and Import of each country; whether how both country depend

on. The last point that we will mention is Education and Health of the citizen in these both

countries. As we know people are the forces of economic growth. On the other hand, all the

data of economy in India and U.S, we still raise up only from 1990 to 2012. To do this, it can

provide the comfortable reading to the reader as well.

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II. History of Economic Development

2.1. United State of America

Once the world’s leading economic superpower, in the twentieth century America

assumed the role of financial capital of the world. As America’s trade deficit continues to

increase, much of America’s massive debt is now controlled by China, and a transfer of

power seems to be in progress. But even amidst recession, the model of the American Dream

is still clinging to life. During the colonial America was a predominately agricultural

economy. Even as the economy expanded over the decades of the eighteenth century, the

colonies only inched toward industrialization by the year of the Declaration of Independence

in 1776. The economy of the thirteen original colonies was actually relatively stable, in stark

contrast to the twentieth and twenty-first centuries. Moreover, from the writing of the United

States Constitution in 1787, America’s economy saw tremendous growth. The Constitution

provided a kind of “economic charter,” laying out regulation of both commerce and money

by Congress. Most importantly, it opened the market of the United States territory. Open

borders allowed for an internal free flow of goods and ideas. One exception was an unpopular

tax on whiskey enacted in 1791 to help pay the national debt established and expanded as a

consequence of the Revolutionary War. From 1788, “the U.S. experienced productivity

growth of about 2% per year.”

On the 1848 discovery of gold in California not only drew hundreds of thousands of

people out West; it also shifted the balance of economic attention of the United States. By the

onset of the Civil War in 1861, gold not only backed American currency, but because of its

role in Northern industry, it was indirectly a primary funder of the Northern war effort.

Before long, however, both the North and the South resorted to paper currency. Inflation was

rampant on both sides but particularly in the South, which lacked the institutional and

bureaucratic power of the North, who had both “an established Treasury and a revenue-

gathering system”. Leading up to the war, the opposing political parties were divided by the

question of slavery. The answer to that question, ultimately decided by Union victory, would

determine the very appearance of the economy of the United States. Elected in 1860,

Abraham Lincoln and his Republican party had Northern industrial interests to preserve,

which led to the establishment of a new tariff on foreign goods in 1861. And, because of the

war, industry in the North further flourished. The industrial economy of the North would

persevere.

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The two most influential economic events of the twentieth century in America are the

Great Depression and World War II (1929 – 1945). While the precise causes of the Great

Depression are both numerous and challenging to pinpoint, the economic effects were

disastrous. At its peak, unemployment was nearly 25 percent of the workforce as hundreds of

banks failed (about 40 percent) and hundreds of millions of deposits were lost. In summary,

after “increasingly stock speculation, the stock market crash of 1929 wiped out millions of

investors and crippled confidence among business executives and consumers”. Under the

watch of President Franklin Delano Roosevelt, America launched a vast economic stimulus

program called the “New Deal.” The program was designed to rebuild the confidence lost

during the Depression and put people back to work through government-sponsored works

projects. The new Federal Deposit Insurance Corporation (FDIC) lured people back to banks

while the Public Works Administration provided vast tracts of inexpensive housing. A close

relationship between the private sector of the economy and the American government was

developed as a result of the Great Depression. That relationship would continue into World

War II, when the nation’s industrial sector was mobilized and coordinated by the government

to contribute products directly to the war effort. The gross national product (GNP) of the

United States increased over 50 percent between 1941 and 1945 and unemployment hit its

lowest point ever at 1.2 percent.

Into the modern era (1950s – Present), while portions of Asia and Europe lay in literal

ruins, the United States continued to grow after the war, both in population and economically.

The postwar “baby boom” was one of many results of the American military returning home.

Most significantly, consumer spending and numbers of consumers increased substantially.

The American “middle class” became dominant. Suburbs exploded with the passing of the

Federal-Aid Highway Act of 1956. By now the United States was the richest nation in the

world. As a result, America was developing an extensive infrastructure to match its wealth.

The completion of the Interstate Highway System “remains the largest public works project

in the history of the world”. Finally, the strong interrelationship between the government and

the ever-expanding industrial sector (the “military-industrial complex”) helped establish the

United States as the economic superpower of the world going into the Cold War a dominance

that would be cemented with the collapse of the Soviet Union. The middle of the twentieth

century saw a brief expansion of labor unions and then labor policy. Most important to

American workers were expanded labor rights regulated by the federal government, as well

as the Civil Rights movement of the 1960s. President Lyndon Johnson’s “Great Society”

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further expanded and guaranteed access to opportunity by minorities in America while

Congress helped support new federal spending in the form of programs such as Medicare and

Food Stamps. As president from 1977 to 1981, Jimmy Carter was hit hard by such discontent

as the trade deficit increased dramatically, inflation hit its highest point since World War I,

and unemployment had climbed to 9 percent. With the country in another recession, President

Ronald Reagan was subsequently elected on promises of smaller government as well as lower

taxes and increased deregulation. But Reagan did not also decrease public spending. The

result of increased expenditures (particular in the military and defense) but decreased taxes

was significant increases in both the budget deficit and the national debt as the U.S.

government was forced to borrow heavily from other countries. The economy of the 1990s

was driven by the rise of technology and the Internet, whose companies made startling gains

on the stock market. Personal and business technology alike broadened and streamlined

access to the global marketplace. Economic optimism was based upon high-tech “dot.com”

industries who built their success from low interest rates and enthusiastic investors during an

era of low unemployment and low inflation.1

2.2. The Republic of India

In order to understand about the economic growth of India, we should look at history of

India before first 45 years after got independence and the last 20 years as a free economy

market. After 200 years under colonize of Britain, India become a sovereign state in August

15, 1947. After got independence, in the first 45 years, Economic India began to separate into

two distinct segments, which are private and public. The private sector owned and operated

with small to medium size business. So private also play role in term of developing the

economic, however the India’s government only provided those private sector to operate with

a kind of small and medium business because they nervous those private sector can have

more power and lead to bad affect to their own nation, that’s why the government is

important in play role in protecting the big industries, and also government is the one who

took care everything such as consumer service, transportation (airline, railroads, and local

transportation), communication service, and social service (education and health care) with

the reasonable cost as well as the employment sector. India also followed the five-years-plan

from Soviet Union in order to improve their infrastructure, agricultural production, health

1 2010. A History of the U.S Economy . September 10. Accessed November 1, 2014.

http://www.randomhistory.com/us-economy-history.html

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care, and education; however the process worked extremely slowed due to the India’s

democratic system.

During in 1990s, India’s economy began to face a crisis with growing inflation,

unemployment, poverty, and low foreign exchange reserve due to the collapse of Soviet

Union. The collapse of Soviet Union is really significant to the impact of India’s economic

because of India is a major trading partner with Soviet Union and a key supplier for low cost

oil. Since the collapse of Soviet Union, India had to buy oil from free market. The foreign

exchange reserve become fell to low in term of the Gurf War sent thousands Indian’s

workers, whose worker at Middle East, back home resulting in a huge dent in India’s foreign

reserve. Consequently, in 1991, the India government had to change closed-door economic

policies because government ran out.

After the economics of India faced a crisis and closed-economic policies, India decided to

reform their economy to become liberalization and privatization by Prime Minister

Narasimha Rao. By implemented the idea of Prime Minister, Manhoman Singh, who was the

finance minister during that time introduced several economic reform such as lower tariff

levels, reform exchange rate policy, liberalized industrial licensing policy and also relaxed

India’s FDI policy. These reforms began to open the door in order to attract the multination

corporation to invest in India. Many multinational corporations deserved many advantages

from India’s new economic policies and as the result the FDI in India increased in just three

years. In term of economic growth in India were based on 3 major factor such as increased

FDI, India’s expertise in information technology, and increase the domestic consumption.

Since the increased of FDI and expertise information technology, it produced a lot of job

employment and created the growing the middle class which demand of creating increased

the domestic consumption.2

III. Comparison of Economy

Being a developing country, India is not as economically prosperous as the United

State. In this case study, our group will observe factors of economic growth that allow the

2 Gosai, Dushyant. 2013. History of Economic Growth in India. April 24. Accessed November 1, 2014.

http://www.internationalpolicydigest.org/2013/04/24/history-of-economic-growth-in-india/

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United States to be more developed and are being implemented by India in an effort to

achieve economic progress.

3.1. Saving and Investment

Economic growth basically also considered by the saving and investment within the

country. Some scholars believed that the growth in one country is considered by the saving

because when the saving is high, the people will purchase more in the future and also mean

the country's security is high. While, some scholars considered investment as the main factor

to accelerate the economic growth which is very primitive because the more investment,

more jobs available, then people have salary to buy goods and production, and the

productivity will be increased. Basically, India and United States have different level of

investment and saving, but how is it impact to overall economic system between the two

countries and how it contributes to economic growth. India once was the closed market

country where trades especially export and import were limited and importantly the private

enterprises were highly restricted. So, we will compare the saving and investment in both

countries.

The United States, one of the richest countries in the world, has been a forward-thinking

country that builds for tomorrow through saving and investment. There has been a fluctuation

between saving and investment in United States because this greed power country faced

many crises such as recession, great depression, and government deficit which mean the

public sector high expense while the private sector have more saving in year 2008 to 2011 but

suppose nation saving is the sum of both public and private saving. However government

spending particularly automatic stabilizer like means-tested benefits that can stabilize the

consumption of people hit hardest by recession. The Great recession in 2008 is causing by

when people has a very low personal saving and in addition to that borrowing or what we call

leveraging to buy a house, but it also come with risks. Life become very difficult in a value of

the asset you bought decline. So, they faced difficulty in repay it back3. As stated saving

contribute a lot to investment, national saving also allow us to invest in physical assets that

help everyone. In the example, where a saving family saves money and deposit in the local

bank, and the bank lends that money to business for purchase of a new machine and the

3 Cole, Alan. 2014. Losing the Future: The Decline of U.S saving and investment. Accessed November 6, 2014.

http://taxfoundation.org/article/losing-future-decline-us-saving-and-investment,

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machine is what economic call investment. Investment is the process by which financial

savings are turned into real estate. The purchase of equipment makes the workers at the

business more productive, raising their wages, and helps the economy produce more goods

overall for consumers to use. However, the saving and investment in U.S has showed the

downfall since the 1969 until 2009. Usually, saving and investment move in similar pattern

overall but in U.S investment grow faster than saving apparently because U.S has an open

economy. Much of the investment in America is financed from abroad. America is very good

place to own investment, and foreign savers recognize this; the physical manifestation of this

economic trend is that foreign investors own more property in America than America own

abroad. For example, New York Skyline, the iconic 77 story tower on Lexington Avenue, the

Chrysler building is 90 percent owned by the Abu Dhabi investment Council4. The U.S NIIP

which stand for Net International Investment Position is about negative 4.6$ trillion, meaning

that foreigners own about 4.6$ trillion and foreign investor own about $26.5 trillion of the

stock of investment in the United States.

In the past few decade, India was the closed economy country compare to United

States of America, thus the economic performance was not as great as U.S because both

private and public sector were strictly manipulated by the Government and especially saving

and investment was not seen as good. In 1994, the first time that India permit Foreign

Institutional Investors (FIIs) to invest up to 24 percent of equity of Indian corporate, this limit

was later raised to 49 percent5. FII increased from $3.5 billion in 1995-96 to $7.6 billion in

2003-2004 and a record $10.3 billion in 2004-2005 and $10 billion in 2006-2007. Saving rate

in India has steadily increased over time, from an extremely low base of 9.0 percent in 1950-

51 to 37.7 percent in 2007-2008 as well as the investment rate; this is a significant positive

and robust relation between growth rates. Showing that India had a close capital account

before 1991 which restricted capital mobility through administrative manipulation and

outright prohibition, domestic saving and domestic investment in India were highly

correlated, also the divergence between saving and investment in persistent until the

liberalization was narrowed down after the 1991 and balance of payment crisis after the

economy shifted to flexible exchange rate regime in 1993. Economic growth in India was

4 Bagli, Charles V. 2008. Abu Dhabi Buys 90% Stake in Chrysler Building. July 10. Accessed November 6, 2014.

http://www.nytimes.com/2008/07/10/nyregion/10chrysler.html 5 Nayak, Satyendra S. 2008. Globalization and the India Economy. Milton Park: Taylor and Francis Group.

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largely led by investment demand through growing investment both direct and portfolio

investment play a role, the rise in investment was largely financed domestically, from a low

21.6 in 1992 to 37.7 percent in 2008. This fuelled investment, raising the need for all type of

investment related goods. Domestic saving in India is divided in two parts- Public saving and

Private Saving and the private saving divided to two parts which are household saving and

corporate saving and the three sectors has a different growth rate base on their composition.

The most noticeable trend is the growing divergence between the public and private saving.

Public saving decline from its peak level of 4.9 percent of GDP in 1977 to 2.2 percent in

2002, where it increase back to 4.5 percent in 2008, during the same time both private and

household sector have steadily growth rate nearly 60 percent in early 1990s to a maximum of

94 percent in 2002, after which nearly 94 percent in 2008. The private sector grows from

below 10 percent to 23 percent in recent years. Similar composition changes have occurred in

investment sector. Until, late 1980s public investment rate was dominating and reaches its

peak 12 percent in 1987. Following the liberalization, the role of public sector gradually

decreased. Hence, the private sector investment has steadily increased. The share of public

sector investment in total investment was at around 50 percent in 1980s and has declined to

23 percent in 2008. On the other hand, the share of private corporate which was little more

than 20 percent in 1980s reaches to 40 percent in 2008. While household sector investment

rate also increased from low base of 3.2 percent in 1964 to 14.2 percent to 20056.

3.2. Education and Health Care

Economic growth in one country depends on 2 factors such as doing research and human

capital. When we are talking about the human capital, we might think about education and

healthcare of the people in one country. First let start with education, for this point our group

decide to choose 3 differences of measuring education input such as Public Expenditure on

Education, Expected year of schooling and Secondary School Enrollment (Vuthdara, Lecture

2014)7, in order to make a comparison between India and U.S. Education is very important

because education is the activity of transforming skill, knowledge, behavior or attitude

(Vuthdara, Comparative Economic System 2014)8. When there’s a change of these, it can

6 Ramesh Jangill, Causal relation between saving, Investment and Economic growth for India, http://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=2486, Nov 6th 2014. 7Vuthdara, Prof. Um. 2014. "Lecture." Measuring Education 15/09/2014.

8 Group, The Wourld Bank. 2014. The World Bank Group. Accessed November 07, 2014.

www.data.worldbank.org.

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effect to productivity that influence on economic growth in one country. So let take a look to

countries, India and US in Public Expenditure on Education, Expected year of schooling

and Secondary School Enrollment. About public expenditure on education is the total public

expenditure (current capital) on education expressed as a percentage of the GDP9 in a given

year. It includes government spending on educational instituted (both public and private),

education administration and transfer or subsidies for private entities (students/households

and other private entities). And expected year of schooling refers to the average duration of

formal education in which a five-year-old child can expect to enroll over his or her lifetime.

For secondary school enrollment is percentage of the population of official secondary

education age.

The table below shows the comparison of education between United States and India.

Year 2010

Country in Compare India US

Public Expenditure on Education 3.3 5.4

Expected Year of Schooling 5.1 12

Secondary School Enrollment 65 93

Source: Legal, The World Bank. The World Bank Group. 2014. www.data.worldbank.org (accessed

November 07, 2014)

On the other hand, according to University of Michigan, Even though education has

increased in India, literacy rates continue to act as an economic deterrent. Let compares

literacy rates for the United States and India. While both countries have high GDP, the

monetary value of GDP for the United States is considerably higher than that of India. In

India, 47% women literate and 70% of the males are literate. In the United States, equal

literacy rates exist for men and women, with 97% of both genders being literate. Lower GDP

values for India could be caused by the unequal literacy rates between males and females that

continue to persist in India, suggestive of the need to implement gender equality to achieve

economic growth.

9 GDP = Gross Domestic Product

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Furthermore, in human capital, not only education is the main factor for economic growth

but also health care system should be come through with education to increase human index.

So in order to make reader easier to understand the comparison of health care system between

India and US, please take a look at the table below:

2010

India Rank US Rank

People living with HIV 2.4 3rd 1.2 117th 39 % more than US

Life Expectancy 66.8 156th 78.37 47th 17% more than India

Physicians per 1000

people

0.6 19th 2.3 31st 4 times more than

India

Quality of healthcare

system

64.36 28th 69.03 23rd 7% more than India

Source: Group, The Wourld Bank. 2014. The World Bank Group. Accessed November 07, 2014.

www.data.worldbank.org

3.3. Export and Import

Besides saving and investment, health care and education, export and import are also the

crucial factor to determine the economic growth in each country. Export allows you to grow

your business by tapping into new oversea markets, expanding network contacts, and if done

properly, can significantly maximize your profitability (Government of Western Australia,

2014). Importing, on the other hand, can be an excellent strategy for expanding your business

by helping you reach new domestic markets, offer new products and reduce manufacturing

and component costs. In the following paragraph, we will compare the export and import

statistics between USA and India during 2011-2013.

According to the U.S. International Trade Administration released on 2012 and foreign

trade performance in India, India’s exports stood at Rs. 1465959 crores (~76 billions) in

2011-12 (28.9 %), while U.S. exports of goods and services increased by 1.4 percent in

January 2012 to $180.8 billion since December 2011. Based on Figure 1, of all the India’s

exported item groups, ‘Engineering goods’, ‘Petroleum Products’ and ‘Gems and Jewelry’

are the most important item groups that the percentage share of each of these commodity

groups being more than 15%, followed by ‘RMG of all Textiles’ and ‘Drug, Pharmacutes &

Fine Chemicals’ which have shares of 4.5 % and 4.3 % with exports values at Rs. 65613

crores and Rs. 63554 crores during 2011-12. Taking a look at US’s export from figure 3 and

4, we can see that the services’ export is 30%, while goods cover 70% and the top three

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merchandise products in 2013 includes transportation equipment, computers and electronic

products, and chemicals which cover 16.3%, 13%, and 12.6% respectively.

India’s imports stood at Rs. 2345463 crores (~381 billions) in 2011-2012, while US’s

imports increased 2.1% to $233.4 billion over the same period. It is seen from the figure 2

that the commodity group ‘Petroleum, Crude & Products’ has a huge impact on Indian

economy with its percentage share during 2011-12 stands at 31.68 % which means almost

one third of our foreign reserve goes on importing this commodity. The second significant

commodity group which affects Indian economy is the “Gold and Silver’ which has a share

of 12.55 % with almost Rs. 3 lakhs crores of import values (Rs. 294255 crores), followed by

‘Machinery, electrical and non-electrical machinery’, ‘Electronic goods’ and ‘Pearls, precious

& semi-precious stones’ which shares 7.13 %, 6.67 % and 5.72 % occupying third, fourth and

fifth positions respectively. Figure 3 and 4 indicates that US imports service is accounted for

17% and 83% of goods with the top 3 products including computer and electronic products

(15.5%), transportation equipment (14.7%), and last but not least, oil and gas which covers

12.6%.

Figure 1 Figure 2

Figure 3

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Figure 4

IV. Discussion and Finding

While education has increased in India, unequal literacy rate continue to exist and account

for the lower GDP of India as compared to the United States. Therefore, gender equality is a

factor that is proven to contribute to economic prosperity. (Michigan 2014)10. And according

to the above point of comparing the 3 main factors to measuring education between India and

U.S is that education in India is still poor that the way to access education is still limited

which is far from U.S that equal chance to access education and get high percentage of

joining school rather than India. After finding the data to compare the health care system of

India and US our group have a clear discussion that India is still poor at development of

economic because of the education is still low and also health care is still poor for Indian

citizen with contrast with US citizens. This is also one factor that can stuck economic growth

as well. Even technology improve but India cannot be like US.

USA's economy is more developed due to the fact it exports more than imports which is

totally different from India. Surprisingly, the most exported products of India and USA are

engineering goods and transportation and electronic equipment’s in which conclusion can be

10 Michigan, University of. 2014. The REgents of the University of Michigan. Accessed October 25, 2014.

www.sitemaker.umich.edu

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drawn that both of them are expertise in technological field, and research and development.

Another interesting fact is that US's top export is transportation and electronic products;

nonetheless, those products are also in the top list of its import.

Saving and investment are also the factors that stimulate economic growth and both

factors have connection and casual affect. According to my research, U.S faced the downfall

both saving and investment according to its local saving which is very low and also the

government deficit and which reflects to fluctuate the economic pattern to down. Likewise,

the investment in U.S is persistently decreasing but still higher than saving because mostly

there are many foreign investors come to invest in this free economic country and now the

foreign investors is much higher than the local investor due to its economic system. However,

in India after reforming its economic system, they abolished restriction over the private and

household over resource ownership and allocation. India become steadily increased over time

especially the capacity of saving from household is much higher than before the establishing

the free market. The investment in India also seen as improvement especially when they

permit the Foreign Institutional Investors in 1994. India both saving and investment in

contrast to U.S became increasing. The public sector seems to have less influents over market

and so it reflect the good outcome for both private and household sector to gradually increase

their investment and saving over the market.

V. Overall Assessment and Study

Through my opinion, I think these two powerful countries are unlikely to be defeated

easily even if they both face different difficulty in improving market outcome. U.S has a

resilient economic country which mean it faced many challenging in the past but still can

survive over time even now U.S has a very low point in saving and investment due to the lack

of personal saving but the tax reforming might be necessary to help this economy system and

it will also help the local investment not to be invaded or conquer by the foreign investors.

However, India is still in another level of free market which mean India need to learn more in

in order to improve its market outcome by encourage household saving and investment and it

doesn’t meet that the public sector has no intervention on the market, they need also attract

foreign investors to increase job for local people thus they will have a good paid job and also

increased the personal saving. This might help them to determine putting their money in the

bank, then bank may loan the money to the local business and this is likely to subsidy the

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infant industry, the result is that there will be more local investment in India rather than the

foreign investors.

India is developing into an open-market economy, yet traces of its past autarkic policies

remain. Economic liberalization measures, including industrial deregulation, privatization of

state-owned enterprises, and reduced controls on foreign trade and investment, began in the

early 1990s and have served to accelerate the country's growth, which averaged under 7% per

year since 1997. India's diverse economy encompasses traditional village farming, modern

agriculture, handicrafts, a wide range of modern industries, and a multitude of services.

Slightly more than half of the work force is in agriculture, but services are the major source

of economic growth, accounting for nearly two-thirds of India's output, with less than one-

third of its labor force. India has capitalized on its large educated English-speaking

population to become a major exporter of information technology services, business

outsourcing services, and software workers. In 2010, the Indian economy rebounded robustly

from the global financial crisis - in large part because of strong domestic demand - and

growth exceeded 8% year-on-year in real terms. However, India's economic growth began

slowing in 2011 because of a slowdown in government spending and a decline in investment,

caused by investor pessimism about the government's commitment to further economic

reforms and about the global situation. High international crude prices have exacerbated the

government's fuel subsidy expenditures, contributing to a higher fiscal deficit and a

worsening current account deficit. In late 2012, the Indian Government announced additional

reforms and deficit reduction measures to reverse India's slowdown, including allowing

higher levels of foreign participation in direct investment in the economy. The outlook for

India's medium-term growth is positive due to a young population and corresponding low

dependency ratio, healthy savings and investment rates, and increasing integration into the

global economy. India has many long-term challenges that it has yet to fully address,

including poverty, corruption, violence and discrimination against women and girls, an

inefficient power generation and distribution system, ineffective enforcement of intellectual

property rights, decades-long civil litigation dockets, inadequate transport and agricultural

infrastructure, limited non-agricultural employment opportunities, inadequate availability of

quality basic and higher education, and accommodating rural-to-urban migration.

The U.S has the largest and most technologically powerful economy in the world, with a

per capita GDP of $49,800. In this market-oriented economy, private individuals and

business firms make most of the decisions, and the federal and state governments buy needed

goods and services predominantly in the private marketplace. U.S business firms enjoy

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greater flexibility than their counterparts in Western Europe and Japan in decisions to expand

capital plant, to lay off surplus workers, and to develop new products. At the same time, they

face higher barriers to enter their rivals' home markets than foreign firms face entering US

markets. U.S firms are at or near the forefront in technological advances, especially in

computers and in medical, aerospace, and military equipment; their advantage has narrowed

since the end of World War II. The onrush of technology largely explains the gradual

development of a "two-tier labor market" in which those at the bottom lack the education and

the professional or technical skills of those at the top and, more and more, fail to get

comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically

all the gains in household income have gone to the top 20% of households. Since 1996,

dividends and capital gains have grown faster than wages or any other category of after-tax

income. Imported oil accounts for nearly 55% of U.S consumption. Crude oil prices doubled

between 2001 and 2006, the year home prices peaked; higher gasoline prices ate into

consumers' budgets and many individuals fell behind in their mortgage payments. Oil prices

climbed another 50% between 2006 and 2008, and bank foreclosures more than doubled in

the same period. Besides dampening the housing market, soaring oil prices caused a drop in

the value of the dollar and deterioration in the US merchandise trade deficit, which peaked at

$840 billion in 2008. The sub-prime mortgage crisis, falling home prices, investment bank

failures, tight credit, and the global economic downturn pushed the United States into a

recession by mid-2008. GDP contracted until the third quarter of 2009, making this the

deepest and longest downturn since the Great Depression. To help stabilize financial markets,

in October 2008 the U.S Congress established a $700 billion Troubled Asset Relief Program

(TARP). The government used some of these funds to purchase equity in U.S banks and

industrial corporations, much of which had been returned to the government by early 2011. In

January 2009 the US Congress passed and President Barack OBAMA signed a bill providing

an additional $787 billion fiscal stimulus to be used over 10 years - two-thirds on additional

spending and one-third on tax cuts - to create jobs and to help the economy recover. In 2010

and 2011, the federal budget deficit reached nearly 9% of GDP. In 2012 the federal

government reduced the growth of spending and the deficit shrank to 7.6% of GDP. Wars in

Iraq and Afghanistan required major shifts in national resources from civilian to military

purposes and contributed to the growth of the budget deficit and public debt. Through 2011,

the direct costs of the wars totaled nearly $900 billion, according to US government figures.

US revenues from taxes and other sources are lower, as a percentage of GDP, than those of

most other countries. In March 2010, President OBAMA signed into law the Patient

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Protection and Affordable Care Act, a health insurance reform that was designed to extend

coverage to an additional 32 million American citizens by 2016, through private health

insurance for the general population and Medicaid for the impoverished. Total spending on

health care - public plus private - rose from 9.0% of GDP in 1980 to 17.9% in 2010. In July

2010, the president signed the DODD-FRANK Wall Street Reform and Consumer Protection

Act, a law designed to promote financial stability by protecting consumers from financial

abuses, ending taxpayer bailouts of financial firms, dealing with troubled banks that are "too

big to fail," and improving accountability and transparency in the financial system - in

particular, by requiring certain financial derivatives to be traded in markets that are subject to

government regulation and oversight. In December 2012, the Federal Reserve Board

announced plans to purchase $85 billion per month of mortgage-backed and Treasury

securities in an effort to hold down long-term interest rates, and to keep short term rates near

zero until unemployment drops to 6.5% from the December rate of 7.8%, or until inflation

rises above 2.5%. Long-term problems include stagnation of wages for lower-income

families, inadequate investment in deteriorating infrastructure, rapidly rising medical and

pension costs of an aging population, energy shortages, and sizable current account and

budget deficits - including significant budget shortages for state governments.

VI. Conclusion and Recommendation

The reason why we have to compare economics because of economic policy can make us

to see the differences between the countries. No economic system is pure because of the role

of state and another factor. Economic policy also can make us to see the differences between

the countries that is the reason why we have to compare economics. So according to the data

comparison in 3 main factors such as Saving and Investment, Education and Healthcare, and

Export and Import, our group meet a hard situation to discuss about this because the data

shows India is weaker than U.S in almost point. Then we can make an overall assessment that

between India and U.S, physical capital that refer to saving and investment of both countries

remain some struggling but U.S seem to be more prosper while India is trying to increasing

saving and investment. About Education and healthcare that refer to human capital, India still

face with many challenges about this factor, as healthcare system is low that leads to weak

education. As we know human capital is very vital for economic growth, U.S citizen can

access high quality of healthcare system and reach good education. That’s why U.S economic

growth more than India. And Foreign capital which refer to export and import, we can see

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how the differences of both countries. Last but not least, our group hopes that this term paper

of comparison of economic system can help some reader who wants to clarify the differences

of India and U.S for some reasons. Finally, our group would like to say thank you to our

professor that give this good opportunity for us to research about this interesting topic and on

the behalf of economic student, we will try our best more to be good at deep explanation and

waiting for any comment, especially use this research to study more to improve economic in

our country.

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