Can India emerge as the World's third largest economy?

By SiliconIndia   |   Monday, 30 May 2011, 10:33 Hrs   |    1 Comments
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Can India emerge as the World's third largest economy?
Bangalore: It is well known fact that, India is the next close competitor to China in terms of economic growth and the speed at which the growth rate is increasing, it is said that India will be the third largest economy in the World. Standard Chartered through one of its surveys predicts that by 2030, India will out beat China but there are many pitfalls that India has to face before it reaches that stature. Regulatory burden, infrastructure bottlenecks, high oil prices and slowdown in foreign direct investment could be the main hurdles that India will have to face.

According to Gerard Lyons, Chief Economist and group head, global research, Standard Chartered Bank, the world is going through its third 'super-cycle', which is referred to as a period of historically high global growth, lasting a generation or more. He said the growth will be driven by increased trade, high rates of investment, urbanization and technological innovation which only the large and new economies can sustain. He said that only countries which have abundance of cash or commodities will make it to the third super cycle and the balance of economic and financial power will be shifted from the West to the East.

Currently the Indian economy is expected to grow at 9 percent, however the fluctuations in the inflation is a big concern. Gerard Lyons further went on to explain that India's food for the soul remains in foreign direct investments and if the investments are not rapid enough then India's growth will be at stake. The net FDI for the year 2003-2007 was about 40 percent which has gradually decreased to 28 percent in 2010. "The government's inability to push ahead with the relaxation of FDI caps in sectors such as multibrand retail and insurance has also dampened FDI inflows." Lyons said.

The report also spoke about the level of corruption, scams and scandals that has been revelead in the recent times. It said that the FDI in a way is affected due to the rising scams and scandals and have damaged the global image of India. The scams have de motivated many countries in continuing their relationship with India. It has made foreign countries to think twice before they invest. "The regulatory environment in India has been inherited from the British. There needs to be right regulations and investment opportunities for investors," added Lyons. The rising oil prices could also be a potential risk to India's growth.

With a very conducive framework of regulations for foreign investors will India ever be able to be one of the largest economies?

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