WILL INDIA BECOME AN ECONOMIC SUPERPOWER, DOES IT MATTER

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WILL INDIA BECOME AN ECONOMIC SUPERPOWER, DOES IT
MATTER WHAT MIGHT PREVENT IT?
Stephen Howes, Lead Economist (India), World
Bank March 2005 showes_at_worldbank.org Disclaimer
This represents my views, not those of the
World Bank
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A. WILL INDIA BECOME AN ECONOMIC SUPERPOWER?
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India currently has the 11th largest GDP in the
world
WDI Constant 1995 US billion, 2002
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accounting for 1.6 of the global GDP in 2002
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and ranks 26th in the world by total trade in
goods and services (US billion, 2002)
WTO US billion, 2002
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India has been one of the fastest growing
economies in the world over the last 20 years
Annual average growth rates of 10 fastest growing
economies over 1980-2002 excl. small countries
(pop Source WDI
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What does the Goldman Sachs BRIC Report
say?(BRICBrazil, Russia, India, China)
Goldman Sachs in their BRIC report have higher
than historical projections for Brazil and Russia
and lower predictions for China
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leading India to emerge as the 3rd largest
economy in 2050 (1995 US billion)
Note the big gap between the first three and the
rest
Goldman Sachs Constant 1995 US
billion

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Projecting GDP using historical growth rates,
India would be the 6th largest economy in 2050
WDI Constant 1995 US billion
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Under GS assumptions, India would be the worlds
3rd largest trader in 2050
Goldman Sachs WDI Constant 1995 US billion,
projected at historical Trade-to-GDP ratios

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Using historical growth rates, India would be the
10th largest trader in 2050

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Will India Become an Economic Superpower?
India is already a large player.
It will become larger. But it may not become one
of three giants
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B. DOES IT MATTER IF AND WHEN INDIA BECOMES AN
ECONOMIC SUPERPOWER?
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India is already a population superpower
India will be the worlds most populated country
by 2050 its population is expected to stabilize
by the year 2100 at 1.8 billion
Goldman Sachs
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With a PC GDP of 494, India today ranks 128th
in the world
The fundamental challenge facing India is not to
become an economic superpower but to become rich
and eliminate poverty.
WDI Constant 1995 US, 2002
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Alternative Scenarios

• If India grew at GS rates it would be the poorest
  of the BRIC and G6 countries in 2050, but
  equivalent to a low-end high income country like
  Spain today
• If India grows at historical growth rates (6.5)
  for the next 50 years, India would have in 2050 a
  GDP PC of US 4564 (constant 1995 US)
  equivalent to a lower-middle-income country like
  Brazil today.
• If India reverts to the Hindu growth rate
  (3.5), its 2050 GDP p.c. will be US 1723,
  equivalent to Iran today.
  
• Summary of scenarios

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C. WHAT MIGHT PREVENT INDIA FROM BECOMING AN
ECONOMIC SUPERPOWER?
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RISKS TO GROWTH

So far, just doing trend analysis. But economic
growth can slow down as well as speed up.
Countries can catch up, but also be left behind.
Argentina 1889 GDP pc 91 of US GDP pc
1999 GDP pc 33 of US GDP pc
What are the factors which might slow down growt
h in India?

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1. MACRO SHOCKS
Has the economy been shock-proofed?

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2. SECTORAL CHALLENGES
Sectoral growth rates since Independence
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2. SECTORAL CHALLENGES Industry
Indias low share of industry in GDP compared to
East Asia.
WDI
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3. GROWING UNEMPLOYMENT jobless growth?
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3. GROWING UNEMPLOYMENT (cont) Will moderate
growth be enough?
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4. GROWING REGIONAL INEQUALITY
State GDP p.c. USD, 1999-00
Central Statistical
Organization

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4. GROWING REGIONAL INEQUALITY (cont).
GDP PC in constant US, projected for the year
2050 using historical growth rates
Central Statistical
Organization

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5. POPULATION GROWTH
Indias Regional Distribution of Population will
Change Over Time
Economic Political Weekly, Vol. X
XXVIII No. 45, November 8-14, 2003

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6. URBANIZATION
Indias urbanization has only just begun
Urbanization as a proportion of total population,
year 2002
Source WDI
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6. URBANIZATION (cont.)

• If India does grow rapidly, one would expect
  about 75 of Indias population would be
  urbanized by 2050
  
• Urban population in 2050 75 of 1.6 billion
  1.2 billion
  
• Urban population today 28 of 1.002 billion
  280 million
  
• Urban population would increase by 920 million by
  2050 (almost 20 million new urban residents a
  year)
  
• Can India cope with such rapid urbanization, or
  will it stymie Indias growth?

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7. ENVIRONMENTAL DETERIORATION

• A lot of environmental problems diminish with
  growth
  
• But not all e.g. water.

Water stress
Water scarce
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8. HEALTH THREATS AIDS
Water stress
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8. HEALTH THREATS (cont.) AIDS
But are parts of India only a decade or less
behind parts of Africa?
Water stress
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8. HEALTH THREATS (cont.) AIDS IMPACT
Water stress
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9. WEAKENING GOVERNANCE
Water stress
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10. POLITICAL RISKS

• India is a stable democracy (cf. China yet to
  make the democratic traditions)
  
• But democracies can be unstable
• Unstable governments
• Short tenures
• Rickety coalitions
• Civil violence (cf. Sri Lanka, Nepal)

Water stress
Water scarce
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11. SECURITY RISKS

• Regional conflict
• Terrorism

Water stress
Water scarce
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12. GLOBAL RISKS

• Global recession
• Spread of global terrorism or other forms of
  conflict
  
• Global warming or other environmental threats to
  growth
  
• Any slowing down of global growth will tend to
  perpetuate the current economic configuration.

Water stress
Water scarce
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WHAT SHOULD INDIA WORRY ABOUT?

• India should worry most about those risks or
  challenges which
  
• Will tip India from base to low case growth
  (rather than high to base)
  
• Have a reasonable probability of occurring
• Are at least partially within Indias control
• 2 leading candidates AIDS, conflict

Water stress
Water scarce
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IN SUMMARY THE ANSWERS

• Will India become an economic superpower?
• On current trends, yes.
• Does it matter?
• Yes, but primarily as an indicator of
  prosperity.
  
• What might prevent it?
• 12 risk areas identified, some very serious and
  daunting. Lots of unknowns. Plenty of challenges
  to confront.
  
• India is certainly heading in the right
  direction, but into unchartered territory. Its
  voyage will be one of the great voyages of the
  21st Century.

Water stress
Water scarce