Sign of The Times:India the New Economic Superpower
Written on Saturday, June 4, 2016
By Dr. Himanshu Dutt
At 7.5% GDP growth rate, India is the fastest growing economy in the world, says IMF. Here’s why agencies world over are confident about India’s superpower economic emergence and why is China a weak contender.
Indian Economy up, World’s Collectively Down
At a time when global economic growth is bleak and facing the risk of downside, International Monetary Fund’s (IMF) world economic outlook released this April a forecast of India to grow at 7.5% in 2016. Prior to this, Asian Development Bank’s (ADB) annual report also suggested that India will grow at 7.4% in 2016-17- so IMF’s prediction is fairly in line with ADB. Similar projections have been made by global rating agency Moody’s in its Global Macro Outlook 2016-17 and Fitch more optimistically at 7.7%. At this rate, India is the fastest growing economy placed ahead of China’s 6.5%. Our own Economic Survey released this February estimates our growth to between 7 and 7.7% while China facing the slowest rate since 1990.
Factors Pumping-up Growth
Interestingly, IMF being bearish on world economic growth lowering it’s earlier projection by 0.2% at 3.2% for this year (estimated 2.8% growth rate for G20 economies). While sluggish growth majorly attributed to financial markets’ volatility world over, India’s a sweet spot. Chiefly due to pick-up of industrial activity after being down consecutively for last 2 years. Recovery in private investment fueling the internal consumption demand. Decrease in inflation in the consumer price index (CPI) resulting in higher average income and, the interest rate cuts making spending attractive. But most importantly, fall in global oil prices have made imports cheaper, which in turn has helped lowered domestic costs.
However, what The Wall Street Journal acknowledges on its commentary about India’s growth is it’s ability to withstand volatility in global financial market safeguarding it from external vulnerabilities and helping it focus on domestic initiatives as India continues to strengthen its domestic business policies for making business in India easier to do. The government is trying to woo investments and manufacturers to the country with programs like Make in India, 100 Smart Cities and Digital India. Reforms like GST (Goods and Services Tax), replacing the Indirect Taxes that state and federal government charges, are seen as a start in this direction – adding greatly to ease of doing business in India by giving clarity in tax structure. In fact, National Council of Applied Economic Research (NCAER) estimates that it will add 2% to GDP growth.
India recently made headlines in the world for being unscathed from the impact of the global financial crisis that badly hit major economies including the Europe. The reason - strong growth in domestic savings that continues to support domestic investment.
Another introspection about India’s growing economy shows robust consumer spending as major reason for its growth, which makes up about 55% of aggregate demand in the economy. According to Center for Monitoring Indian Economy (CMIE) consumer goods output has risen at the fastest pace in 4 years (in 2015-16) which is up by 3% after two straight years of fall in production. Similarly, the RBI’s latest consumer confidence survey and a similar survey from Nielsen reports “Indian consumers were the most confident in the world in terms of job prospects, personal finances and concerns in the first 3 months of 2016 with their confidence index touching a nine-year high during the period " .
Overtaking China with a Double Digit Persona
However, in a Gallup Survey when asked in U.S about people’s opinion on ‘leading economic power in the world today’ – only 1% named India while 50% said China. No doubt China’s growth has shaken the world, but India in terms of pace of economic expansion now has left it behind. Contrary to it, the survey published by EY in 2015, global business leaders, rated India as most favorite investment destination followed by the China in terms of India’s macroeconomic stability which is up from 70% in 2014 to 76% and political-social stability which is up from 59 per cent in 2014 to 74 per cent in 2015. It reported “with FDI capital inflows of US$30.8b, India has outpaced all other economies".
Looking forward, the only country analysts all over the world are confident to achieve a double digit growth, is India. But, how did analysts arrived at this conclusion? Unconventionally, they looked at the data from recent Global Competitiveness Report to look at this claim and it is not futile.
If we see domestic market size or purchasing power parity, India is already a superpower– ahead of Germany, Japan and Brazil and just behind China and U.S. But now with 7.5% growth rate, this year, India is, for the first time, leading the World Bank’s growth chart of major economies says the World Bank in its Global Prospects Report. World Economic Forum lists down another interesting statistics taking financial market development as parameter to evaluate India’s winning over China. India shares 51st rank while China 54th place. Both have seen– nearly the same income distribution and GDP growth, doubling of their global venture capital and three-times increase in their stock market capitalization – but volatility snatches away it’s sheen from China. Shanghai Index lost 40% since June 2015 while Mumbai Index has been very stable making India the hottest stock market in the emerging world.
Recent article penned down by Harvard University’s Ricardo Hausmann early this year, projected 7% growth for India throughout 2024, which will continue to put it ahead of China. The premise Professor shared is “India’s ability to export more diversified products will help its economic growth” as reason for this stance. This information is based on data on ‘trade in goods’ – and we haven’t really talked about the trade in services where India’s services share to its GDP (for the period 2011-15) is 51% compared to 48% of China. In fact dropping exports in July 2015 was critical reason for China to devalue it’s currency yuan – cheaper yuan to give Chinese exporters price advantage in foreign markets. Yuan’s sudden drop though didn’t have much of a lasting impact as much as it freaked the investors.
The Most Powerful Bric
The talks circling now are that India’s rising economic status has been creating significant divergence between the BRICs nations making its sustenance look less prominent. Brazil struggling with its negative growth and internal corruption scandals. Russia facing financial crisis, economic stagnation, and deteriorating demographics over Ukraine crisis, and with China’s case discussed over already it’s only India that stands strong right now poised for growth though poverty and corruption are also rampant in India.
The Road Ahead
While we are proud that this year our country has surpassed China’s growth rate can this be made a routine performance? China’s 17-fold increase per capita against India’s 4.5 (from 1980 onward) can be tough ice to break. Way back in 1948 there was a dreadful question lurking – will India survive? Now posed with a similar question but positing with hope – will India survive this economic super-being? However, before you set sailing forth in this direction just think for a minute the oasis of opportunities India’s super economic emergence can offer you. And if still those half-a-dozen reasons about India being undisputedly the world economic super power doesn’t appeal you in that case chances are you’ll miss the sign of the times.