The growth story: Tiger and the dragon

India will pip China in 2013 as far as real, or inflation adjusted GDP growth is concerned, according to a report by Ernst & Young. India is projected to grow at 9.5 per cent in the calendar year 2013, while China is expected to grow at 9.2 per cent, according to E&Y’s first Rapid Growth Market Forecast (RGMs) out on Monday. India will grow the fastest amongst the 25 RGMs in 2013. Collectively, these markets will grow by 6.2% this year, almost four times more than the growth expected in the Euro zone.

The report attributes India and China’s ability to weather a likely slowdown to the large size of their domestic markets and India’s high savings and investment rate, currently a third of the GDP.

The report points that the RBI may start emphasising more on growth outlook. It has gone for 12 rate hikes since March 2010, taking repo rate to 8.25 per cent, but still inflation as per WPI is consistent over 9 per cent since December 2010.

But it also cautioned about the medium term risks like stubbornly high food inflation and uncertain outlook for investment. It pegs India’s GDP growth rate for calendar year 2011 at 7.2 per cent.

India currently experiencing slowdown in various sectors may start looking up, in case inflation does start to fall back by the end of this year and the US and EU economies do not slip back into recession, the report pointed.

However, in an alternative scenario the report points that RGMs may feel tremors of the Euro zone crisis, where GDP growth of RGMs may be cut down to 3.2 per cent in 2013.

Nevertheless it expects the RGMs to account for 50 per cent of world GDP by 2020 in purchasing power parity terms up from 40 per cent presently.