India has the potential to overtake China in terms of growth rate in the coming years, provided it implements reforms in a big way, noted economist Nourel Roubini said today.
The improvement in India’s growth rate has so far mostly been because of ‘luck’ even as the country is more safe from global shocks, he added.
Reiterating his earlier prediction that the Indian tortoise will take over Chinese hare, Roubini, however, said India will have to wait longer to match it in terms of overall size of GDP.
“I do believe (in that prediction) because China is slowing down and next year it may be below 6 per cent, from about 7 per cent now.
“At the same time I don’t see a reason why India cannot grow faster. They can go to 7 per cent soon and even more than that. In the next decade there is no reason why India should not grow at a rate more than China.
“Unfortunately, it will take many more years for Indian GDP to match the size of that of China. But my statement is conditional on implementation of a series of reforms that India needs to undertake,” he said at a session on India’s next decade here at the World Economic Forum Annual Meeting here.
Roubini, however, said that last year India was part of Fragile Five, since when things have improved but that has also improved because of luck.
“There has been fall in oil prices which has helped on many fronts including on inflation, subsidy and interest rates. Growth is improving but has not been exceptional. The private sector investment has not picked up which can help GDP rise significantly.
“A large number of private sector entities are highly indebted, the public sector banks are under stress and there is a need to convert savings into investments.
“Good news is that fiscal imbalances are improving but bad news is that growth is not improving that much. Government is right in saying it would not do big bang reforms, but still it need to do big things and do radical reforms. Its a case of half of glass is positive,” Roubini said.
According to him, the world economy is running on a “four-engine airplane” where one engine is the US, the second is euro zone, third is Japan and fourth is China.
“Good news is that the US is recovering, bad news is in euro zone, Japan made some wrong decisions and China is slowing down. In case of India, it is more safe from global shocks,” he said.
On what could go wrong, Roubini said things are changing.
“Today a call centre in Bangalore may be doing the work, but tomorrow technology can do that. Even in China manufacturing jobs are being lost. In India, labour cost is very low, but things are changing very rapidly and therefore you need to do reforms also very rapidly,” he noted.
ICICI Bank chief Chanda Kochhar said she was very optimistic as the government was already taking the right steps.
“The opening of FDI in various sectors, resolution of problems in mining and so on, solutions and simplification of land acquisition norms, all these are helping us in improving ease of doing business.
“We are at a very very sweet spot in terms of macroeconomic scenario. In last 20 months, after Fragile Five was coined and India was found to be most fragile one, the analysis shows that the things have improved substantially.
“If we take advantage of this sweet spot and take right decisions we will reach our true potential of high growth,” she said.
Kochhar said India has two advantages that is demography and the potential to invest, but both of them can go wrong if we do not harness our potential fully.
WEF Annual Meeting 2015 Co-Chair Hari Bhartia said there is an amazing interest in India this time in Davos.
“I have met over 100 CEOs and they are seeing the new government driving the growth agenda in a very effective manner.
“In last few years, there was a kind of hopelessness with regard to India, but that has completely changed now,” he said.
Kochhar said private sector is indeed not making investments, but they will do once they get back the confidence.
The corporate sector has capability and the financial sector has capacity to support, and they can ignite the economy, she added.
Andhra Pradesh Chief Minister Chandrababu Naidu, who was among the audience, said: “All over the world you see, even if you do populists things in wrong way, you will be caught and lose elections.”
“Everybody here has been coming to Davos for so many years, but for the first time people are saying there is a hope and a hype. I don’t want to call it India Decade, but India Century. Today, we have a stable government and a very effective administrator at the helm of affairs,” he added.