E@zyVG’s Vichar::World Connected

India has made significant inroads into opening up its economy to the world outside. It has come a long way from its inward-looking economic strategy practiced for around 50 years post the independence. Economic liberalisation and the gradual opening up to the world have boosted economic growth. It is being estimated that India will become the fastest growing economy by 2020, thus overtaking China. Moreover, its GDP per capita will double from roughly US$ 2,500 currently to almost US$ 5,000 by 2020. India is increasingly attracting the world’s interest as a result of the country’s impressive economic performance. In this write-up, I classify the factors that are leading the Indian economy in its way forward.

Capital Flows: The BRICs have played an important part in global financial developments. Latest estimates suggest that the BRICs now hold more than 30% of world reserves. While China is the dominant holder, Russia, India and Brazil have also accumulated sizeable proportions. Also, despite the reserve accumulation, real exchange rates in each country have appreciated over the last couple of years. BRICs’ current accounts continue to be in surplus, reflecting the group’s key role in the global savings supply. With China’s surplus increasing sharply, the BRICs’ current account is estimated at around US$ 240 bn in 2005 (close to 6% of BRICs’ GDP). Further, the BRICs’ share as a destination for global FDI also continues to rise (now 15% of the global total, nearly three times higher than in 2000).

Growth and Trade: Between 2000 and 2005, the BRICs contributed roughly 28% of global growth in US dollar terms and 55% in purchasing power parity (PPP) terms. Their share of global trade continues to climb at a rapid rate. At close to 15% currently, it is now double its level in 2001. Trade amongst the BRIC nations has also accelerated, with intra-BRICs trade now nearly 8% of their total trade compared to 5% in 2000. Also, India (in intellectual property) and Brazil (in agriculture) have illustrated their policymaking leadership among developing countries through the WTO negotiation process. The BRICs’ share of oil demand is moving steadily higher, with an estimated 18% share in the current year.

Markets: BRICs’ stock markets have got gradually re-rated since 2003, with Brazilian, Russian and Indian indices all up by around 150% over that period. China however, has been the only exception in this regard. The BRICs’ market capitalisation is currently close to 4% of the global total.

In the light of the above facts, it may be interesting to note that the recent report on BRIC nations by Goldman Sachs positions India fifth amongst the fastest growing nations in the world by 2025, based on the countries’ real GDP. The same is founded on extrapolations based on changing demographics, per capita income and contribution to world trade.

Also, by 2050, while China is expected to replace USA as the world’s largest economy, India will not be lagging far behind in the third position.

While these are some broad factors that have been aiding India’s growth over the past few years, there exists solid support in the form of a strong institutional framework and a sound financial system. The country’s growth potential over the next 10 to 15 years is going to set it at the forefront as compared to other developing and developed countries. India’s favourable demographics, talent pool and the reforms process shall help India to a more advanced stage of development as we move forward. However, concerns like bureaucratic hurdles, corruption and low levels of human development still need to be addressed before we can call this century as ‘India’s century’.

Soon I’ll be 30, and I would love to see these figures becoming reality as well as my country and nation prospering in all directions, before my time comes to …

This entry was posted on Monday, May 29th, 2006 at 8:05 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.