India still has a lot of catching up to do

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India still far from replacing China as global growth locomotive: Report

 

By Business Insider India

Even as India is moving towards a fast growing major emerging market economy, but on economic parameters it is still too small to outsmart China as a new global growth locomotive, says a new report by financial services firm BNP Paribas.
 

China registered its weakest growth since the 2009 global financial crisis with a dismal 6.9% GDP in the third quarter of this year. India meanwhile is projected to grow faster than China in the near future. As per Moody's Analytics, India's GDP grew in September quarter by 7.3%, while for the full fiscal it would be 7.6%. India's GDP grew by 7.3% in FY15. Still, the hope that India can replace China as a key locomotive of global demand is "misplaced". 

"Although India is fast approaching China in terms of absolute population, its much lower living standards mean its economy is around five times smaller than China's. At market prices, Chinese GDP was a little over $10 trillion in 2014, while India's was just over $2 trillion," BNP Paribas said in a research note.
"Therefore, those hoping that a more buoyant India can effectively replace the ailing Chinese economy as a new global growth locomotive are likely to be disappointed at least for the foreseeable future," it added.
Moreover, the structure of Chinese and Indian economies are also very different. India's service sector is proportionately much larger than China's, while its investment and industrial-production shares are much lower, the report said.
 

 The infrastructure investment has surged to more than 20% of Chinese GDP, but it is still in ingle digits in India. Given the respective sizes of the two economies, China's annual spending on infrastructure in $terms is more than ten times that of India's.
The report further noted that Chinese commodity demand swamps India's.
India's commodity demand has been about ten times smaller -- it consumed around 80 million tons of steel in 2014 as against China's 800 million tons.
 

 "Accordingly, while India may be slowly usurping China in terms of overall GDP and industrial production growth, it cannot realistically act as a meaningful offset to peaking Chinese demand for industrial commodities as its epic investment cycle inevitably flattens out," the report noted.

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