In the 17th century, China and India were the leading economies of the world, accounting for a substantial part of the global GDP. In the 18th century, the Industrial Revolution transformed the global economic landscape. Countries which missed the Industrial Revolution were pushed back in the race for economic development. First U.K and later the U.S. emerged as leading industrial power houses.
The 20th century witnessed many paradigm shifts in the global economy. Japan rose, phoenix like, from the ashes of Hiroshima and Nagasaki to become the second largest economy in the world. Germany overcame the humiliation of the Second World War to become the third largest economy and the largest exporter of the world. Some Asian countries, which were in the backyard of economic development, became Asian Tigers. On the flip side, the Soviet Union collapsed like a house of cards. The once ‘mighty British Empire’ is, today, neither mighty nor an empire.
The new rising stars are the BRICs (Brazil, Russia, India, China). China is expected to overtake the US and become the world’s largest economy (in $ GDP terms) by 2040 and India is tipped to be the third largest economy after China and US.
Is this possible?
The current trends clearly indicate to this possibility. The global demographic trends and the growth potential of the Emerging world are likely to make this not a possibility, but an inevitability. Let’s look at India’s growth trends: the past, the present and the possible future.
The colonial exploitation bankrupted the Indian economy and produced a growth rate of only 0.5%. The living conditions of the people only deteriorated during this period as is evident from the stagnant per capita income (PCI). The first three decades of planned economic growth produced a higher growth rate of 3.5%, but this ‘Hindu growth rate’, in retrospect, was poor in comparison with our Asian peers. The initial doze of liberalization in the 80s produced higher growth rate. But this was unsustainable and resulted in a Balance of Payments crisis in 1991. The liberalization initiated from 1991 transformed the Indian economy beyond recognition. Our GDP today is on a sustainable growth trajectory. During 2005-10, Indian economy grew by 8.5 % producing a PCI growth rate of 7 %. (our population growth rate is down to 1.5% from 2.3 % during 1950-80). At 7 % PCI growth, income doubles every 10 years. At 1.2 % PCI growth (1950-80 period), income doubles only once in 70 years. This 7% PCI growth is the catalyst driving India’s domestic consumption led growth.
There is a consensus now that liberalization, global integration and the demographic dividend will ensure India’s emergence as a global economic power by 2020. A recent Morgan Stanley report predicts the Indian GDP growth rate to overtake China’s by 2013. Our GDP is likely to be $5 trillion by 2020. The future looks, indeed, bright!.
The author has more than 3 decades of experience teaching Economics in several colleges and Universities. Presently, he is Investment Strategist at Geojit BNP Paribas Financial Services Ltd.