India unlikely to catch up with Chinese economy soon despite faster growth

Two reports released in quick succession last week - one from the World Bank and the other from its twin, the IMF - indicated that the India economy could start growing faster than the Chinese economy within a year or two. The IMF report said this could happen as early as 2016, when the Indian economy would grow at 6.5 per cent, while the Chinese economy would have slowed to 6.3 per cent. The World Bank prediction was for 2017, when it expected India's GDP to start growing at 7.1 per cent, while the Chinese GDP growth would have come down to 7 per cent. There have been other reports - from Goldman Sachs and Macquarie - which sing the same refrain.

All reports focus on the fact that the NDA government led by Prime Minister Narendra Modi has been taking the right steps to push up economic growth, while the Chinese economy has been slowing down, partly by design and partly because of the global economic conditions. In 2014, the Chinese economy registered its slowest growth in 24 years - growing at 7.4 per cent. Analysts do not expect it to go up to 10 per cent anytime soon.

The reports generated quite a lot of enthusiasm among cheerleaders of the government and the press in general. Most headline writers focused on India overtaking China in growth stakes. Many proclaimed that India would catch up with our northeastern neighbour soon. However, a reality check is in order here. The Chinese economy in 2014 was estimated to be around $10.355 trillion. It had reached that figure after almost 30 years of 10 per cent-plus growth. Sure, its growth had slowed down in the past couple of years. But even after slowing down, it notched up over 7 per cent growth in its worst year in two-and-a-half decades.

Meanwhile, the Indian economy stood at $2.047 trillion in 2014. It has never grown at over 10 per cent since Independence. Currently, its growth stands at 5.4 per cent. By 2017, it is expected to grow at over 7 per cent, provided everything works out properly, the government does not make any mistakes and the global economy does not slip back into recession anytime soon. Even then, given the sheer differences in the size of the two economies, it seems unlikely that India will catch up with China anytime soon, or even in a couple of decades.

To understand that, look at the chart Wide Gap. Assuming India grows at an average of 10 per cent over the next couple of decades from 2015 - and it is possible, given the Chinese economy managed to do so for a long period - the GDP of India in 2035 would still be at $15.15 trillion. Meanwhile, even if the Chinese economy slowed to 5 per cent during the same period, it would still be almost double the size of the Indian economy in that year. In fact, at a 10 per cent compounded growth rate, the Indian economy in 2035 would still be lower than the current US economy, which stood at $17.4 trillion in 2014.

Perhaps an even better measure to gauge the economic wellbeing of the citizens of a country is its GDP per capita, which is simply GDP per head of the population. It is here that the picture of India becomes even less flattering. India's current GDP per capita is $1,625.64, compared to China's $7,572.36 and $54,678.17 for the US. The Indian population, though still smaller than that of China, is growing much faster at 1.55 per cent annually. This is almost double that of China's growth rate of 0.66 per cent.

By 2025, India may overtake China as the world's most populous nation. What that means is the gap in per capita GDP of India and China will widen further. And, so will the gap between India and the western countries. Sure, India is a rapidly developing economy, but it is still a long way to go before its people can start rubbing shoulders with their western peers when it comes to economic standing.