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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

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Presentation on theme: "WILL INDIA BECOME AN ECONOMIC SUPERPOWER, DOES IT MATTER & WHAT MIGHT PREVENT IT? Stephen Howes, Lead Economist (India), World Bank March 2005"— Presentation transcript:

1 WILL INDIA BECOME AN ECONOMIC SUPERPOWER, DOES IT MATTER & WHAT MIGHT PREVENT IT? Stephen Howes, Lead Economist (India), World Bank March 2005 Disclaimer: This represents my views, not those of the World Bank

2 A. WILL INDIA BECOME AN ECONOMIC SUPERPOWER?

3 India currently has the 11th largest GDP in the world… WDI: Constant 1995 US$ billion, 2002

4 …accounting for 1.6% of the global GDP in 2002…

5 …and ranks 26th in the world by total trade in goods and services (US$ billion, 2002)… WTO: US$ billion, 2002

6 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 excl. small countries (pop < 10 million) Source: WDI

7 What does the Goldman Sachs BRIC Report say? (BRIC=Brazil, Russia, India, China) Goldman Sachs in their BRIC report have higher than historical projections for Brazil and Russia and lower predictions for China…

8 …leading India to emerge as the 3 rd largest economy in 2050 (1995 US$ billion)… Goldman Sachs: Constant 1995 US$ billion Note the big gap between the first three and the rest

9 Projecting GDP using historical growth rates, India would be the 6 th largest economy in 2050 WDI: Constant 1995 US$ billion

10 Under GS assumptions, India would be the worlds 3 rd largest trader in 2050 Goldman Sachs & WDI: Constant 1995 US$ billion, projected at historical Trade-to-GDP ratios

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

12 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

13 B. DOES IT MATTER IF AND WHEN INDIA BECOMES AN ECONOMIC SUPERPOWER?

14 India is already a population superpower Goldman Sachs India will be the worlds most populated country by 2050; its population is expected to stabilize by the year 2100 at 1.8 billion

15 With a PC GDP of $ 494, India today ranks 128th in the world WDI: Constant 1995 US$, 2002 The fundamental challenge facing India is not to become an economic superpower but to become rich and eliminate poverty.

16 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 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 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. 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

17 C. WHAT MIGHT PREVENT INDIA FROM BECOMING AN ECONOMIC SUPERPOWER?

18 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 growth in India?

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

20 2. SECTORAL CHALLENGES Sectoral growth rates since Independence

21 2. SECTORAL CHALLENGES: Industry WDI Indias low share of industry in GDP compared to East Asia.

22 3. GROWING UNEMPLOYMENT: jobless growth?

23 3. GROWING UNEMPLOYMENT (cont): Will moderate growth be enough?

24 4. GROWING REGIONAL INEQUALITY Central Statistical Organization State GDP p.c. USD,

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

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

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

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

29 7. ENVIRONMENTAL DETERIORATION A lot of environmental problems diminish with growth A lot of environmental problems diminish with growth But not all: e.g. water. But not all: e.g. water. Water stress Water scarce

30 8. HEALTH THREATS: AIDS Water stress Water scarce

31 8. HEALTH THREATS (cont.): AIDS Water stress Water scarce But are parts of India only a decade or less behind parts of Africa?

32 8. HEALTH THREATS (cont.): AIDS IMPACT Water stress Water scarce

33 9. WEAKENING GOVERNANCE Water stress Water scarce

34 10. POLITICAL RISKS Water stress Water scarce India is a stable democracy (cf. China – yet to make the democratic traditions) India is a stable democracy (cf. China – yet to make the democratic traditions) But democracies can be unstable: But democracies can be unstable: Unstable governments Unstable governments Short tenures Short tenures Rickety coalitions Rickety coalitions Civil violence (cf. Sri Lanka, Nepal) Civil violence (cf. Sri Lanka, Nepal)

35 11. SECURITY RISKS Water stress Water scarce Regional conflict Regional conflict Terrorism Terrorism

36 12. GLOBAL RISKS Water stress Water scarce Global recession Global recession Spread of global terrorism or other forms of conflict Spread of global terrorism or other forms of conflict Global warming or other environmental threats to growth Global warming or other environmental threats to growth Any slowing down of global growth will tend to perpetuate the current economic configuration. Any slowing down of global growth will tend to perpetuate the current economic configuration.

37 WHAT SHOULD INDIA WORRY ABOUT? Water stress Water scarce India should worry most about those risks or challenges which: India should worry most about those risks or challenges which: Will tip India from base to low case growth (rather than high to base) Will tip India from base to low case growth (rather than high to base) Have a reasonable probability of occurring Have a reasonable probability of occurring Are at least partially within Indias control Are at least partially within Indias control 2 leading candidates: AIDS, conflict 2 leading candidates: AIDS, conflict

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


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