Will India overtake China?
China’s growth rate could fall as its population ages and income levels converge with those in richer countries
Is this the much-awaited moment when the Indian tortoise starts to catch up with the Chinese hare?
It does not require a journey from Mumbai to Shanghai to realize that China has steamed ahead of India in the race out of poverty. The International Monetary Fund’s latest World Economic Outlook database tells the story in hard numbers. Average incomes in India were a bit higher than those in China in 1990. But by 2007, India lagged behind, with a per capita income of $941 while China was way ahead at $3,180 (at market exchange rates).
Most of the difference in the growth rates of the two countries can be explained by the three components of the standard theory of economic growth: higher investment, increase in employment and productivity growth.
Will the economic crisis that is now rippling through the world help India close the gap and then start moving ahead of China?
Both countries are now in the early stages of a growth slowdown. Most economists still expect China to grow faster than India in 2009. For example, a recent report by Citi—Emerging Markets: The Rocky Road to Recovery—says that the consensus forecast for Chinese economic growth in 2009 is 8.1%, while that for India is 6.6%. That essentially means the average 3 percentage points gap between economic growth in India and China over the past two decades or so will continue to be maintained.
But then, there are many longer-term estimates that India will start outpacing China in the second decade of this century. Consider the famous Goldman Sachs report by Dominic Wilson and Roopa Purushothaman published in October 2003. Their main prediction was that Brazil, Russia, India and China—the Bric countries—would account for a far bigger slice of the world economy by 2050 because of their superior growth rates.
But the two Goldman Sachs economists also said that...