Indian economy’s size
Has India overtaken its erstwhile colonizer Britain in terms of sheer economic size? It seems not, though the day is surely not far off. Despite exultant headlines in sections of the country’s media recently, hard-nosed alysts have now punched holes in the data furnished in a Forbes article that started the hoopla. Former McKinsey consultant and presently researcher at Tsinghua University Akshay Shah had posited in his article that the ‘dramatic shift’ had come about thanks to India’s quarter century of rapid economic growth as well as Britain’s recent woes, particularly due to its sudden exit from the European Union. Pointing out that India was expected to surpass the UK in GDP size by 2020 anyway, Shah wrote that it has happened sooner because of 20 percent fall in the pound’s exchange value in the past 12 months. After conversion to dollars, UK’s GDP stands at $ 2.29 trillion, while India’s GDP (at 153 trillion rupees) is $2.3 trillion, Shah calculated. However, alyst Sharad Raghavan has conducted a reality check by using IMF as well as Indian government data, showing that India’s GDP could have ranged only from 122 trillion to 143 trillion rupees; besides, Shah in his article had slightly misquoted the rupee exchange rate (vis-à-vis the dollar) for the given period, but a small iccuracy can alter the fil figure significantly. Another imponderable is the demonetization effect on India’s GDP in the last quarter of the current fiscal and beyond, though it is widely expected that the country’s economy will grow slower in the short term. The broad consensus, however, is that it is but a matter of time before India overtakes UK in terms of GDP size — because while being of comparable size, the Indian economy is growing at 6 to 8 percent on average per year while UK’s growth rate is 1-2 percent. Whether this event takes place in 2020 as the IMF has projected, or earlier, remains to be seen. Shah has struck a cautiory note in his argument by pointing out that India’s per capita GDP is still less than one-fifth that of the UK, so there is much that needs be done.
The UN’s Economic and Social Commission for Asia and the Pacific (ESCAP) remains upbeat about India’s growth prospects over the next two fiscals, projecting a combined growth rate of 7.6 percent. It’s latest report on India has predicted a rebound in agriculture after normal monsoons, consumption growth due to pay revisions, followed by manufacturing base strengthening and private investment recovering due to structural reforms including passage of goods and services tax (GST) and bankruptcy code. But the Economist Intelligence Unit (EIU), the research and alysis division of The Economist Group, has taken a harder look at India post demonetization. In its global economic outlook in December, the EIU has minced no words about ‘botched implementation of demonetisation’, slashing India’s growth forecast from 7.3 to 6.5 percent in 2016-17 due to the cash squeeze. Despite this, the report predicts that growth in India ‘will accelerate after liquidity shortage eases and public investment ramps up’, making it still the fastest growing large economy in the world. In this context, only time will tell if Union Fince minister Arun Jaitley was prescient or indulging in bravado when he batted for currency flushout with the words: “The fact that India today has the capacity to take these decisions and capacity to enforce them, to experiment boldly even at a time when the world is looking more inwards, marks an exception as far as India is concerned”. So, as the rendra Modi government pushes digitization and less-cash economy as the ‘new normal’ after demonetization, heated expectations about immediate rapid growth will have to take a backseat. India still remains at nomil sixth ranking in terms of GDP size, though In purchasing power parity (PPP) terms, it has been the world’s third-largest economy behind the US and Chi since the last five years. Of more importance to the people is how soon this country transits to ‘upper middle’ and ‘high’ income levels — considering that World Bank data projections of gross tiol incomes (GNI) place these milestones sometime around the years 2026 and 2039 for India.