India's economy 16.5 years behind China's, says Bernstein research report

According to International Monetary Fund (IMF) estimates, India should move into fourth place by 2025 and third by 2027 with an economy size of $5.4 trillion

India is a median 16.5 years behind China on broad business and economic parameters, according to latest research by Bernstein which suggested that the country has much catching up to do.

The brokerage firm looked at various yardsticks that included patents, foreign direct investment (FDI), forex reserves, nominal gross domestic product (GDP), and exports.
 

Its report found that India is behind China by 21 years when it comes to patents, 20 years in FDI, 19 years in forex reserves, and 17 years in exports. On nominal GDP and per capita income, India is 15 years behind. In consumption expenditure, it is 13 years behind. On gross fixed capital formation, it is 16 years behind.
 

Bernstein has based its analysis on data from the Reserve Bank of India (RBI), the China’s National Bureau of Statistics, the Ministry of Statistics and Programme Implementation, the World Bank and the World Intellectual Property Organization.

The gap is understandable given that, a decade ago, India’s GDP was only the 11th largest in the world.
 

But recent years have seen a sea change. Last year, India’s GDP of $3.53 trillion pushed ahead of the UK’s $3.38 trillion, to become the fifth largest economy.
 

According to International Monetary Fund (IMF) estimates, India should move into fourth place by 2025 and third by 2027 at $5.4 trillion.
 

India’s aim is to become a $10 trillion economy by 2030. This figure has been described as a “realistic” target by global consultancy firm Boston Consulting Group. Its global chair emeritus, Hans-Paul Bürkner, in an interview with Business Standard recently, said “7-8 per cent growth is entirely achievable”.
 

In July, Goldman Sachs projected that India would become the second largest economy in the world by 2075, just behind China. It also estimated that by 2075, India’s GDP would rise to $52.5 trillion while China’s would be $57 trillion. The gap between the two countries would close and they would both be ahead of the US ($51.5 trillion). For India to bridge the gap with China, it has certain things going for it. One, China’s growth is slowing down. Annual GDP growth was only 3 per cent in 2022, compared to 8.4 per cent in 2021, according to the World Bank. India is growing faster, at 7 per cent, in 2022 and the expectation is that it will continue to grow at that level or higher.
 

The geopolitical tensions between the US and China have provided India with some new leverage — many global companies manufacturing in China are hedging their bets and India has managed to persuade the likes of Apple to shift manufacturing capacity to the country and also export a large part of its production.
 

But, as analysts point out, Vietnam has done a far better job, taking advantage of a large number of free trade agreements that it has signed.
 

On population parameters, not only has India overtaken China but the latter’s net birth rate has fallen to zero and is going into negative. It will no longer have the advantage of the abundance of young and affordable labour. Wages have already risen sharply. India’s large, young workforce could be a big advantage although it needs to improve labour productivity, which is much lower than China’s.

THE INDIA-CHINA GAP

· India is far behind China in years on various comparative criteria such as nominal GDP, forex reserves, FDI inflow, exports, patents etc.

· But India aims to hit $10 trillion by 2030, a target which experts say is very achievable.

· India is already the fifth largest economy.

· India can leverage the slowing down of Chinese growth.

· It can take advantage of the China Plus strategy by wooing global manufacturers to shift from China. Has met with some success but Vietnam is ahead.

· India has a growing young workforce with labour costs lower than China. But China’s productivity per labour is far higher.