India to become third biggest economy by 2050: Report

By siliconindia staff writer   |   Tuesday, 28 October 2003, 08:00 Hrs
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WASHINGTON: By the year 2050, India is projected to become the third largest economy in the world, behind China and the United States, in that order, according to a recent report by Goldman Sachs.

China, India, Russia and Brazil could outrank the combined economic might of today's Group of Six - the US, Japan, Germany, France, Italy and the UK - by the middle of this century, says the report quoted by the Wall Street Journal.

"The implication is that the economic and financial power is going to shift away from us," says Dominic Wilson, a senior Goldman economist and one of the authors of the report, which sees the US as No. 2 by the year 2050, sandwiched between China and India.

In making its forecasts, Goldman doesn't focus on the four developing nations' current economic-growth rates, even though these certainly haven't been too shabby. Instead, using demographic projections and a model of capital accumulation and productivity trends, it calculates likely gains in gross domestic product and income per capita, and currency movements.

Over the next 50 years, the model assumes that GDP will rise at an average annual clip of 3.8 per cent in Brazil, nearly 6 per cent in India, 4.7% in China, and 3.2% in Russia, versus the US' projected 1.7%. It also assumes that the value of the four nations' currencies will rise.

For America, the report says, the news isn't all bad. Although the US would cease to be the most dominant single force in the global economy, it would reap trade benefits from the new megapowers' hefty gains in spending on goods and services.

Although these nations, particularly China, are often viewed as US competitors, "probably more important in the long run is that these are economies that are going to be generating a substantial part of the world's demand growth," Wilson says.

The four nations have a projected GDP of $2.75 trillion for this year, versus the G-6's $21.25 trillion. But the report reckons that in another five years, the annual increase in spending from these economies could be greater than that from the G-6 and more than twice as much in dollar terms as it is now.

By 2010, the annual increase in spending from the four economies could reach $521 billion, versus the current $159 billion.

To be sure, the forecast assumes that China, India, Russia and Brazil "maintain policies and develop institutions that are supportive of growth."

According to Geoffrey Dennis, an emerging-market strategist at Smith Barney, China's biggest challenge is to move towards a fully free-market economy, while Russia's is to diversify away from its heavy dependence on oil and gas, while creating a consumer society.

India's biggest need, he maintains, is to raise the per-capita standard of living for its huge population, while reducing the "tremendous government interference" in the economy.

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