Indian economy won’t surpass China’s in short term

By Song Guoyou Source:Global Times Published: 2017/9/18 18:43:39

Illustration: Peter C. Espina/GT


With India's economy having been growing fast in recent years, many Indian people and some among the international media are confident that the Indian economy will soon catch up with that of China. There are two main economic indicators that support this view.

The first is foreign direct investment (FDI). The Indian media is fond of quoting data from the Financial Times, which said that the FDI attracted in 2016 by India and China was $62.3 billion and $48 billion, respectively. Indian Prime Minister Narendra Modi also cited this data as proof of his success earlier this year. However, according to data from two major international authorities - the United Nations Conference on Trade and Development (UNCTAD) and the Organisation for Economic Cooperation and Development (OECD) - over the past few years, China's FDI inflows have been much higher than those of India.

In reality, measuring FDI is not only about the amount of money absorbed from foreign direct investment. The amount of outward foreign direct investment (OFDI) is also important. According to data from UNCTAD, China's OFDI in 2016 was $183 billion, while that of India was $5.1 billion.

The second main indicator is the relative GDP growth rates of China and India. On the basis of the "World Economic Outlook" published by the IMF in April, China's GDP growth rate has been higher than that of India for a long time. But in 2016, the GDP growth rates were very close.

Based on the exchange rate, China's GDP in 2016 was $11.2 trillion, 4.87 times more than India's $2.3 trillion. With this size, even if China's GDP grows at only 6 percent annually in the next 10 years, India would need to have average annual GDP growth of 29 percent to catch up. In terms of per capita GDP, China's figure in 2016 was $8,113, while India's was $1,723. In other words, to catch up with China, India still has a long way to go.

Some people may say that China used to be a long way behind the US in terms of GDP, but is currently close to overtaking the US. Why then is it so hard for India to catch up with China? Aside from the advantages of systemic efficiency, it is not difficult for us to understand China's fast GDP growth: It is because China's total population is 4.4 times that of the US.

However, India and China are much closer in terms of population and GDP growth, but there is still a big gap in per capita GDP. Hence, the likelihood of India's economy surpassing that of China in the short term is slim. Moreover, India's domestic problems may curb its economic growth.

India's economic performance in recent years has indeed been remarkable. China has already experienced this process in the past and has been a pioneer for emerging economies. We hope to see that more emerging economies can develop like India so that global economic governance can be more equitable.

Different countries' economic development is bound to experience twists and turns. If a country believes too strongly in temporary results and extracts data selectively, it will not be helpful for it to make practical and appropriate policies and enhance its status in the global economy.

The author is director of the Center for Economic Diplomacy, Fudan University.


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