IMF : India's growth to be faster than china by 2016

Discussion in 'Economy & Infrastructure' started by LETHALFORCE, Jan 21, 2015.

  1. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    We might think of this as being good news for India, as the latest IMF global forecast predicts that the GDP growth rate in that country will be above that of China in 2016. And of course it is good news in one manner, as it means that the poor people of India will be getting better off. But it’s also not unalloyed good news. For the switch comes as a result of slowing Chinese growth, not rising Indian. And it’s also true that India ought to be growing faster than China. Poorer countries should grow faster than richer ones and India is significantly poorer than China.

    Here’s one report on the matter:

    The bright spot in the IMF’s report is this: India will be the fastest growing major economy in 2016, with projected GDP growth of 6.5 percent against China’s 6.3 percent.

    If you want to see the glass as half empty, one has to point out that India’s overtaking of China in 2016 will be the result of a slowing down of Chinese growth rather than just superior performance by India. At 6.5 percent, India will still not have achieved the kind of growth it did over 2003-08.

    Quite so and here is the IMF itself:

    Lower growth in China and its implications for emerging Asia: Investment growth in China declined in the third quarter of 2014, and leading indicators point to a further slowdown. The authorities are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and hence the forecast assumes less of a policy response to the underlying moderation. Slower growth in China will also have important regional effects, which partly explains the downward revisions to growth in much of emerging Asia. In India, the growth forecast is broadly unchanged, however, as weaker external demand is offset by the boost to the terms of trade from lower oil prices and a pickup in industrial and investment activity after policy reforms.

    That is good news in a way, of course it is. Modi is at least making moves towards the right sort of structural reforms that the Indian economy needs. As a significant energy importer India also gains from those lower global fossil fuel prices. And what is lost to the predicted slight slowdown in global growth is made up for by those factors. So, yes, that’s just fine, India will be growing. And, as a result of that slowdown in growth in China it is predicted that India will grow (just) faster than China.


    However, it’s also true that this should be happening. It’s a standard prediction of development economics that poorer countries should grow faster than richer ones. This is because such growth is “catch up” growth. When you’re out there at the technological edge of what it is possible to make, and at the limits of human knowledge of how to make those things, then further economic advance can only come by inventing new ways to do old things or new things to do. This is, as anyone who has ever tried to have an original idea will tell you, difficult. However, if you’re well inside that technological limit then it’s possible to grow more rapidly. One can simply observe the outside world, note that “Ah, that’s the way you do that!” and then go off an do it. Yes, that’s obviously a bit simplistic but it is the basic point being made.

    Given that by some measures (PPP GDP per capita in this case) India is less than half as rich as China ($5,450 to $11,870) then India should be growing faster than China. That is hasn’t been as a regular matter shows the limitations of the economic policies that have been followed.

    So, yes, it is good news that India will be growing strongly in 2016. But that it will be growing faster than China is something we really should have been expecting all along.

    My latest book is “23 Things We Are Telling You About Capitalism” At Amazon or Amazon UK. A critical (highly critical) re-appraisal of Ha Joon Chang’s “23 Things They Don’t Tell You About Capitalism”.


    http://www.forbes.com/sites/timwors...dias-growth-to-be-faster-than-chinas-by-2016/
     
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  3. DingDong

    DingDong Senior Member Senior Member

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    It means absolutely nothing because Chinese economy is several times larger than the Indian economy. Let us not use PPP for economic measurements, India's GDP is just above 2 trillion USD while China's is above 10 trillion USD.
     
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  4. Nicky G

    Nicky G Senior Member Senior Member

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    Obviously its catching up, that does not mean however that India's growth rate pick up is not to be appreciated.

    China's economy is a large bubble due to a variety of reasons: an unsustainable political model that will lead to huge social unrest, growth driven by non-performing assets that will be a burden on the economy until they are written off, huge dues that the likes of US are unlikely to pay off, ageing non-productive population compounded by the one-child policy etc. They are going to have problems for some time to come.

    Anyway, India never leveraged the primary lever for economic growth, manufacturing sector, thus even though we have a lot of catching up to do, we have plenty of scope to actually catch up.
     
  5. ezsasa

    ezsasa Senior Member Senior Member

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    Until we become 4 trillion economy it will be quite boring. it will take atleast a decade to become 4 trillion USD economy. Hopefully our guys will focus on infrastructure for the next four years. real test for modi govt will how to insulate the india's growth story from ups and downs of global economy.
     
  6. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    There is an IT boom developing it may come sooner?
     
  7. DingDong

    DingDong Senior Member Senior Member

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    Even if there is something called a "Chinese Bubble" it won't be allowed to burst, the stakes are too high. India has got a lot of catching-up to do.
     
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  8. ezsasa

    ezsasa Senior Member Senior Member

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    IT boom is what we should try to avoid in my opinion. This skipping of manufacturing phase to service sector phase is part of the reason we are growing slowly. ideally we should try to balance out IT boom with manufacturing / real estate.We should try to level agri-manufacturing-service sectors to 30-30-30 to the extent possible.

    any ideas on the new IT boom?
     
  9. Neo

    Neo Senior Member Senior Member

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    I usually don't like d*ck measuring threads between India and China but Imho regardless of how fast or slow China grows, it should not matter to India. You have work to do and your focus should be on infrastructure and the agriculture which emloyes about 60% of your laborforce but generates less than 20% of your GDP.
     
  10. Nicky G

    Nicky G Senior Member Senior Member

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    Not entirely sure, its a matter of how much it deflates.
     
  11. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    Manufacturing is low margin labor intensive sector
     
  12. ezsasa

    ezsasa Senior Member Senior Member

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    Manufacturing has the advantage of giving employment to semi skilled and low skilled labour force, it's not necessarily low margin. These guys otherwise will be a burden on the social welfare programs. even if these guys manage to get jobs in small scale industries it is job well done.
     
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  13. LETHALFORCE

    LETHALFORCE Moderator Moderator

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  14. LETHALFORCE

    LETHALFORCE Moderator Moderator

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  15. Dark Sorrow

    Dark Sorrow Respected Member Senior Member

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    Who says? It depend on what you manufacture.
    I wouldn't say electronics or semiconductor manufacturing as low margin labor intensive sector. In fact it is quite opposite.
     
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  16. warrior monk

    warrior monk Regular Member

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    I have only 4 words GST, Manufacturing and labour reforms will increase our economy by 4 percentage points in our GDP . GST , labour reforms and congress free India will make our GDP grow by more than 10 percent per year .
    Modi should capture more states to get majority in Rajya sabha by 2016 and then the party begins . Get UP and Bihar and we are ready for double digit growth .
     
  17. reetasharma

    reetasharma New Member

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    I am sure india will be the front runner in following years as the leadership has changed after 60 years and there is pressure on them to deliver
     
  18. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    I think you would like to introduce yourself in a new thread !
     

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