With $85 trillion, how India can become world's largest economy

Discussion in 'Economy & Infrastructure' started by ejazr, Nov 13, 2011.

  1. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    With $85 trillion, how India can become world's largest economy - The Economic Times

    The writer Minhaz Merchant is the Chairman, Merchant Media Ltd

    According to a study by US banking group Citi, India will be the world's largest economy within 39 years. Indian GDP in 2050, measured by purchasing power parity (PPP), will be $85.97 trillion. China, in second place, will have a GDP of $ 80.02 trillion and the US $ 39.07 trillion (see chart).

    With an estimated population in 2050 of 1.63 billion, India will thus have a per capita income of over $53,000 - in the range of today's wealthiest countries like Switzerland and Norway. Sounds too good to be true? Of course it is.

    On paper - mathematically - Indian poverty should disappear by 2050. The reason it won't is that huge inequalities in income will persist unless we rapidly implement second-generation economic reforms which deliver real benefits to the bottom of India's socio-economic pyramid.

    The first chart in our three-chart collage shows the ranking of the top five countries by GDP in 2050 as per Citi's projections. Indian GDP in 2011 is estimated at $4.45 trillion (PPP). To reach $85.97 trillion in 2050, the Indian economy will have to grow at an average annual rate of 8.1% a year for the next 39 years. Optimistic? Perhaps, but not overly so.

    The Citi study relies heavily on India's two dividends - demographic and democratic. The demographic dividend will ensure that India has the largest number of working-age people in the world (over 800 million) between 2015 and 2035 before tapering off as our population reaches a plateau of just over 1.60 billion and starts ageing (as China's already is). Fertility rates of increasingly educated urban and rural Indian women will dip from today's 2.6 to 1.7, which is when a country's birth and death rates equalise.

    A large number of working-age Indians between 18 and 60, however, will be less than optimally productive if they remain poorly educated and are therefore unemployable. To gain from our 20-year demographic sweet spot, education reform must clearly top the government's agenda. Infosys mentor N R Narayana Murthy was partly right when he said that the standard of IIT students has fallen. It has. Too many are rote-learners, spewed out by coaching classes, not creative thinkers.

    Education reform must start with government-run primary schools. Shockingly, in some villages, primary schools have no teachers, no students and an empty shed that serves as a classroom. The government spends 52,000 crore on education every year. That is less than it spends on fertiliser subsidy alone ( 55,000 crore).

    The second dividend Citi banks on to project India's rise to the top of the GDP rankings in 2050 - especially in comparison with China - is democracy. China's autocratic government, the argument goes, can command 10% GDP growth, build superhighways and create gleaming infrastructure.

    But beneath the towers and the maglev bullet train tracks of Shanghai lurks social tension. As China's per capita income rises, its 1.34 billion people will increasingly yearn for real freedom: a free press, an open Internet and, most crucially, democracy.

    If the Chinese government can't deliver on these, a "Chinese Spring" a decade hence cannot be ruled out. That could plunge China into years of uncertainty. Throughout history, as countries grew richer, they grew freer. Will China prove an exception? Unlikely. By that token, India's democracy is a double-edge scimitar. Our raucous, open society takes us two steps forward economically and then one step backwards.

    But if governance reforms - land, electoral, judicial and police - are implemented quickly, the stage could be set for second-generation economic reforms that will turn our democratic institutions into assets for long-term economic and social growth. We will then move from a culture of high subsidies leaked to corrupt middlemen to a culture of high productivity.

    Second-generation economic reforms were stuck in UPA-I because of the Left's ideological opposition and have been derailed in UPA-II because of muddle-headed opposition from within the fractious UPA coalition itself. It is time to cast off the fetters.

    We must allow FDI in retail, introduce hybrid agricultural technology to double crop yields within a decade, modernise infrastructure, make land acquisition fairer to farmers, improve healthcare, pass enabling legislation to unleash the entrepreneurial energy of small and medium enterprises - the backbone of our economy - and implement tough, effective regulation to clean up business practice.

    India is set to become the world's third largest economy in the world in 2011 largely because Japan's GDP will shrink by around 2% to $4.42 trillion following the devastating earthquake and tsunami. But if a growing GDP is not to become a cruel irony for India's 445 million still-desperately poor people, the government must begin the second stage of economic liberalisation without losing any further time.

    Examine our second and third charts. The one on top is pyramid-shaped, split into three sections. It reflects India's current household income structure: a large base of the poor and relatively poor of over 860 million, a narrow intermediate section of the middle-class around 280 million and a tiny tip of the reasonably well-off of 70 million.

    The chart below it is diamond-shaped and reflects the shape of things to come in 2050 if political and economic reforms have their desired effect. The bottom section comprises around 330 million of the poor and relatively poor (down from 860 million today), the top section comprises the well-off, around 300 million, up from 70 million today and the intermediate bulge comprises the expanded middle-class of nearly one billion, up from 280 million today. That is the future. We must lay its foundation today.
     
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  3. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    Oh, boy! 85 trillion for India and 80 trillion for China in 2050? I guess we have to get energy from Mars to support such economy. Citi is forecasting something 40 years away. I hope they had foreseen their nearly collapse just 2 years ago when it was barely saved as a too big to fail bank.
    We don’t need such wet dream and get excited by it. We want tangible work to make our life and countries better. Time will tell if we success or not.
     
    Last edited: Nov 13, 2011
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  4. badguy2000

    badguy2000 Respected Member Senior Member

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    could anyone prdict in 1900 that Germany would be beaten twice with 50 years?
     
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  5. niharjhatn

    niharjhatn Regular Member

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    Don't give a s*** about GDP numbers. Ending the economic disparity between rich-middleclass and poor should be the aim, not pure GDP numbers.
     
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  6. Yusuf

    Yusuf GUARDIAN Administrator

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    I have a fair chance of seeing that day! Amen to this report.
     
  7. trackwhack

    trackwhack Tihar Jail Banned

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    This report is more than a year old. Citi is not the only study to state this.

    Most reports predicting Indian economy to become the largest in the world basis their predictions on the age demographic and the assumption that India can educate that demographic enough to make them all worthy of being hired.

    Now wait for some moron to come an diss about PPP being a number that's all made up. The fact that in 20 years GDP wont be measured in USD is completely lost on some people.
     
  8. Adux

    Adux Senior Member Senior Member

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    There is no way to stop the widening rich - poor divide, than more economic liberlization, leading to massive expansion of poor into the middle class.
     
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  9. Adux

    Adux Senior Member Senior Member

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    We will see when that happens, till then i will take GDP nominal . Though i agree with you USD as a global currency wont exist in 2020, but that depends on variables which like you, i believe will play out. But as of today, USD as global currency stands.
     
  10. Defcon 1

    Defcon 1 Senior Member Senior Member

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    what does USD has to do with any of this??? if GDP is adjusted according to PPP, the currency it is calculated in won't make the difference...
     
  11. Adux

    Adux Senior Member Senior Member

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    Please read his views on PPP and the general perception about PPP. Calculations.
     
  12. Bhadra

    Bhadra Defence Professionals Defence Professionals Senior Member

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    kickok Dear,

    There is limit to growth on this earth if not Mars. The main driving forces of the growth is the population apttern of a country.

    By 2050 the largest number of young and middle age working population in the world will be in Inda followed by the USA. Majority of the population in china by 2050 will be above 50 and thus non working population. Then how can china sustain that growth?

    I do not know where would you be, still working or retired ailling?
     
  13. Bhadra

    Bhadra Defence Professionals Defence Professionals Senior Member

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  14. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    In 2050 I'm senior people for sure with grand children. Most Chinese members in this forum will be like me over 65 years old. By then India may no longer feel China as a threat.
    You are right China will become a senior society by then assuming our one child policy continues. India has more young labors and may develop faster than China in the future. But my point is one USA today is consuming nearly half of world resources, how could we afford 10 more USA? I couldn’t figure out where we find resource except outer space.
     
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  15. Bhadra

    Bhadra Defence Professionals Defence Professionals Senior Member

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    Kickok Ji,

    India and China by culture are still not consumerist societies that is why their rate of savings is so high, more so that of china. Chinas strength lies is vast resrvoir of reserves with them which comes from peoples saving and state enterprises.

    Both the economies can survive and keep growing on the strength of their domestic consumption, more so the Indian economy. The diffrence between USA, China and India is the nature of their consumption and stage of development the respective society would have reached. High quality good of fifth generation will be consumed in USA, fourth generation in India and China may continue to remain satisfied with third or fourth generation goods.

    There is likely to be sufficient for all unless Chinese compete with USA for fourth wave technologies like R&D, International Finance or ITES where India is ahead of China. That is what is the fear of Americans and that is why Obama keeps naming Indians and the Chinese.

    I think all three societies will be content at their stages of development unless the Chinese sink themselves into South China Sea.
     
  16. Tshering22

    Tshering22 Sikkimese Saber Senior Member

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    What rubbish! Although I'd wish the richness part to be true, the population part is scary.
     
  17. agentperry

    agentperry Senior Member Senior Member

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    and with such distribution in place we wont be able to see poors in 2050. they will be extinct because of hunger
     
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  18. Yusuf

    Yusuf GUARDIAN Administrator

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    Dont get scared. I am more than sure a lot of that population will run abroad into aged countries including China to make up the work force. Those countries will have no alternative but to accept expats. That will mean more remittance as well.
     
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  19. cir

    cir Senior Member Senior Member

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    PPP again?

    Stick to market exchange rates!:rofl:
     
  20. no smoking

    no smoking Senior Member Senior Member

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    How is china going to survive with less working population? Oh, how about computerization? how about increasing productivity?

    My question for our india friends is that where you can find enough job for those new young workers considering that there are 30% of them cannot read or write.
     
  21. Defcon 1

    Defcon 1 Senior Member Senior Member

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    why do u want to stick to market exchange rates?????

    PPP only gives the clearer picture, any country can revalue its currency to show higher GDP in terms of dollar at any time, GDP calculated according to PPP will not depend on market conditions....
     
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