If you were born in India in the 1980s, you were economically better off than your Chinese counterpart. That changed in the 1990s when China's GDP sky-rocketing. As that growth slows down, an International Monetary Fund report has generated much excitement in India that the country could surpass China once again.
But a simple crunching of numbers shows that the gap between the two countries’ GDPs ‒ the total value of all goods and services produced over a specific time period ‒ is not unlikely to close any time soon, at least not at the present rate of growth.
The IMF report released on January 20 says that India’s projected rate of economic growth for 2016-17 is 6.5%, whereas China’s growth rate is marginally less at 6.3%.
This sounds like great news for the Indian economy, which is now projected to be the world’s fastest-growing developing economy. However, growth rates do not necessarily show the entire picture. If Indians hope to match China’s GDP, they will have to wait for many years than they might expect – until 2075.
India was ahead – 25 years ago
In 1980, both India and China had similarly low per capita GDP figures, with India only marginally better off than China. But in 1990, China’s emphasis on low-wage industrial growth propelled its economy onward and upward past India’s, which grew on the strength of service industries.
A 2008 study in the Journal of Economic Perspectives notes that both countries certainly have done well with their economies. India’s per capita had doubled and China’s increased seven times in the period they studied from the 1980 to 2007.
But China’s growth is an outlier across East Asia. The difference between India and China is now so wide that at the present projected growth rate, it would take 60 years for India to even reach China’s present GDP.
Even if India’s growth rate was its highest ever, as it was at 10.3% in 2010 under the Manmohan Singh government, it would take us 35 years, or until 2050 to reach China’s economy. If we want to be slightly more ambitious and surpass China in a decade, we would need a growth rate of around 35% each year.
This is to ignore the fact that China remains one of the fastest growing economies in the world. If both economies continue to grow at exactly the same present projected rate, unlikely as that seems, it would take India several hundred years to catch up.
Growth rate or GDP?
The key here is that the IMF report only discusses projected rates of growth and not actual GDP figures.
India has been among the world’s fastest growing economies for several years now. In 2010, it even came very close to matching China’s rate of growth. But as the chart above demonstrates, GDP growth rates fluctuate far more than actual GDP figures and a higher growth rate does not necessarily reflect a healthier economy.
All this is quite apart from the fact that the IMF last year revised its predictions for India downwards by the end of the year, as Quartz points out. And India’s supposedly shining economy is actually just the same as it was in 2014. The only difference is that China’s rate of growth has been slowing down so rapidly, India has now overtaken it.
China’s rate of economic growth has been steadily declining for some years now, largely because of reduced investments. While the IMF predicts that this will have a negative impact on other Asian economies, India’s forecast remains only marginally less than what the IMF predicted in October 2014.
“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,” the report said.
This is not to discount the importance of a high growth rate. Evidently, the faster an economy grows, the faster its GDP and other related factors do as well. But the Modi government came to power with the promise to “re-energize the engines of growth” and it will need much more than IMF projections to bring this about.
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But a simple crunching of numbers shows that the gap between the two countries’ GDPs ‒ the total value of all goods and services produced over a specific time period ‒ is not unlikely to close any time soon, at least not at the present rate of growth.
The IMF report released on January 20 says that India’s projected rate of economic growth for 2016-17 is 6.5%, whereas China’s growth rate is marginally less at 6.3%.
This sounds like great news for the Indian economy, which is now projected to be the world’s fastest-growing developing economy. However, growth rates do not necessarily show the entire picture. If Indians hope to match China’s GDP, they will have to wait for many years than they might expect – until 2075.
India was ahead – 25 years ago
In 1980, both India and China had similarly low per capita GDP figures, with India only marginally better off than China. But in 1990, China’s emphasis on low-wage industrial growth propelled its economy onward and upward past India’s, which grew on the strength of service industries.
A 2008 study in the Journal of Economic Perspectives notes that both countries certainly have done well with their economies. India’s per capita had doubled and China’s increased seven times in the period they studied from the 1980 to 2007.
But China’s growth is an outlier across East Asia. The difference between India and China is now so wide that at the present projected growth rate, it would take 60 years for India to even reach China’s present GDP.
Even if India’s growth rate was its highest ever, as it was at 10.3% in 2010 under the Manmohan Singh government, it would take us 35 years, or until 2050 to reach China’s economy. If we want to be slightly more ambitious and surpass China in a decade, we would need a growth rate of around 35% each year.
This is to ignore the fact that China remains one of the fastest growing economies in the world. If both economies continue to grow at exactly the same present projected rate, unlikely as that seems, it would take India several hundred years to catch up.
Growth rate or GDP?
The key here is that the IMF report only discusses projected rates of growth and not actual GDP figures.
India has been among the world’s fastest growing economies for several years now. In 2010, it even came very close to matching China’s rate of growth. But as the chart above demonstrates, GDP growth rates fluctuate far more than actual GDP figures and a higher growth rate does not necessarily reflect a healthier economy.
All this is quite apart from the fact that the IMF last year revised its predictions for India downwards by the end of the year, as Quartz points out. And India’s supposedly shining economy is actually just the same as it was in 2014. The only difference is that China’s rate of growth has been slowing down so rapidly, India has now overtaken it.
China’s rate of economic growth has been steadily declining for some years now, largely because of reduced investments. While the IMF predicts that this will have a negative impact on other Asian economies, India’s forecast remains only marginally less than what the IMF predicted in October 2014.
“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,” the report said.
This is not to discount the importance of a high growth rate. Evidently, the faster an economy grows, the faster its GDP and other related factors do as well. But the Modi government came to power with the promise to “re-energize the engines of growth” and it will need much more than IMF projections to bring this about.