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  1. India to topple China yet again as fastest growing economy, and this time for 5 years

India to topple China yet again as fastest growing economy, and this time for 5 years

India is poised to topple China yet again to become the fastest-growing major economy, and this time for at least five years. Here's what latest data show

By: | Updated: March 6, 2018 2:33 PM
India is poised to topple China yet again to become the fastest-growing major economy, and this time for at least five years. (Image: PTI)

India is poised to topple China yet again to become the fastest-growing major economy, and this time for at least five years. After a minor blip in 2017 due to disruptions caused by note-ban and the new GST regime, India’s GDP growth is expected to rebound sharply and keep pacing for at least next five years, according to latest data.

Meanwhile, China’s economic growth will continue to slow — dragging its growth to a 32-year-low of 5.8% by 2022, according to the latest estimates by International Monetary Fund (IMF). The reason for the widening economic growth gap between the two countries is the policies being adopted by respective governments.

While China’s Xi Jinping is poised to take forward policies to curb poverty, pollution, and financial risks, the Narendra Modi government in India is pushing for a business and investment-friendly environment. Rating agency CRISIL has said that India’s consistent economic growth uptick will be driven by structural changes, focus on the agricultural sector, and a rise in the global growth.

In 2017, India missed the top spot by just 0.1 percentage point. For the January-December period in 2017, India’s GDP growth was 6.7%, while for China, it was 6.8%. But 2018 onwards, India’s growth is estimated to accelerate and China’s growth to decelerate — consistently.

The chart below shows India and China’s past and future GDP growth projections by IMF

Disruptions over; time to reap benefits!

“After two sub-par years, interjected by demonetisation and rollout of the Goods and Services Tax (GST), growth is seen recuperating to a respectable 7.5% next fiscal,” Crisil said in a report titled The Fours of Growth. It said that for India’s growth will be driven by four ‘R’s — that will critically determine the extent of pick-up and its sustainability.

They are: 1) Resolution of stressed assets in banking; 2) rural rejuvenation; 3) relentless implementation of reforms, and; 4) rising global growth. The transparent and time-bound process to resolve the problem of stressed asset offers hope for the “lending cycle to start, a requisite for growth step-up”, Crisil said.

The focus on demand and job creation through spending on rural and labour-intensive infrastructure space is likely to support growth in the next fiscal, and push demand in the consumer sectors.

Even as major structural reforms like the Goods and Services Tax (GST), Real Estate (Regulation and Development) Act, and Ujwal Discom Assurance Yojana (UDAY) rolled out in last few years have teething issues at the implementation stage, Crisil said, they also have potential to be transformative in the long run.

China to still lead…

But despite Indian economy firing on all cylinders, it has not been able to capture the space vacated by China. Crisil has pointed out that China is exiting the low value-added (textiles, apparel, footwear, toys, etc.) manufacturing space as wages there are rising, erasing the low-cost advantage it once enjoyed but India has not been able to capture that space.

“Much as it would like to capture the space vacated by China, India has so far been unable to do so, because of competitiveness issues,” Crisil said, adding that India’s manufacturing exports competitiveness has been hindered by a variety of factors, such as rigidity in labour laws, challenges associated with land acquisition, inadequate physical infrastructure, and poorly skilled manpower despite an improvement in the Ease of Doing Business ranking.

Moreover, the comparison of India-China GDP growth in terms of Purchasing Power Parity (PPP) tells a different story. China’s economy is expected to constitute 18% of the world’s economy in 2018, while Indian economy is expected at about 8%. In next ten years, India is estimated to become the third largest economy in the world, while China is already world’s largest economy.

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  1. Shahid Ullah
    Mar 6, 2018 at 9:05 pm
    Poll propaganda. How can economy grow when huge scams n loot has jeopardised the economy.. STOP FALSE STATEMENTS WHOEVER IS INVOLVED IN SPREADING
    Reply
    1. ananya roy
      Mar 8, 2018 at 10:24 am
      Are you trying to say that CRISIL and IMF reports are spreading rumors?
      Reply

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