Issac John - Khaleej Times, Dubai - 24 February 2011
DUBAI — India is expected to be the world’s largest economy by 2050, overtaking China and the US in view of its continuing robust growth, a Citigroup report said.
India’s growth rates over the coming decades could be as high as those of China in the past decade, said the report titled “Global growth generators.
“China should overtake the US to become the largest economy in the world by 2020, then be overtaken by India by 2050,” said the report authored by Citi economists Willem Buiter and Ebrahim Rahbari.
“We expect strong growth in the world economy until 2050, with average real gross domestic product, or GDP, growth rates of 4.6 per cent per annum until 2030 and 3.8 per cent per annum between 2030 and 2050. As a result, world GDP should rise in real purchasing power parity, or PPP-adjusted terms from $72 trillion in 2010 to $380 trillion in 2050.
Developing Asia and Africa will be the fastest growing regions, driven by population and income per capita growth, followed in terms of growth by the Middle East, Latin America, Central and Eastern Europe, the CIS, and finally the advanced nations of today, Citigroup said.
India’s breathtaking growth estimates are based on purchasing power parity, or PPP, an economic growth indicator that takes into account the purchasing power of each country’s currency, instead of the prevailing exchange rate conversion.
According to Citigroup economists, Indian economy is expected to be nearly $85.97 trillion on PPP basis by 2050 from $3.92 trillion in 2010.
Going by the report, India would surpass the US — currently the world’s largest economy — to become the second largest by 2040.
“We expect India to overtake Japan to become the third largest economy in the world by 2015,” it noted.
However, India needs to improve its infrastructure, educate youth, relax hostile attitude toward foreign direct investment and deregulate the economy to accelerate growth if it is to reap the benefits of rapid cross-border technology transfer that China has benefited from so greatly, the report said.
In terms of PPP, Indian economy, currently valued at $3.78 trillion, was at the fourth place in 2009. The country was behind the US, China and Japan, according to the World Bank.
The report said India’s population of working age is expected to grow by 40.7 per cent between 2010 and 2050.
India has successfully raised its aggregate savings rate to levels that would allow sustained high levels of domestic capital formation (the domestic saving rate averaged 34.4 per cent over 2006-2009 and the gross domestic investment rate 32.4 per cent),” the report added.
Professor Nouriel Roubini, chairman of Roubini Global Economics, who is called “Dr Doom” for his grim forecast of the global financial crisis several years ago, said in December that Indian economy may expand more than China’s in the next 10 years if it lifts curbs on foreign investments in retail and boost spending on road and bridges. “In the next few years, it is possible that the growth of India might surpass that of China, with India maintaining a close to double-digit growth, while China might slow down to eight per cent or so,” said Roubini.
Morgan Stanley expects India to overtake China as the fastest growing global economy by 2015.
The report noted that North America and Western Europe’s share of world’s real GDP (calculated on PPP basis) is expected to fall from 41 per cent in 2010 to just 18 per cent in 2050.
During the same period, developing Asia’s share is predicted to rise from 27 per cent to 49 per cent in 2050.
For poor countries with large young populations, growing fast should be easy: open up, create some form of market economy, and invest in human and physical capital, it said.
Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam have the most promising (per capita) growth prospects. “They are our 3G — global growth generators — countries.
“Institutions and policies are more important for growth once countries have achieved a fair degree of convergence.
Growth will not be smooth. Expect booms and busts. Occasionally, there will be growth disasters, driven by poor policy, conflicts, or natural disasters. When it comes to that, don’t believe that ‘this time it’s different,’” the report said.