WILL INDIA BECOME AN

ECONOMIC SUPERPOWER,
DOES IT MATTER & WHAT
MIGHT PREVENT IT?
Stephen Howes, Lead Economist (India), World Bank
March 2005
showes@worldbank.org
Disclaimer: This represents my views, not those of the World Bank
A. WILL INDIA BECOME
AN ECONOMIC
SUPERPOWER?
India currently has the 11th largest GDP
in the world…
United States 10417
Japan 3979
Germany 1976
United Kingdom 1552
France 1410
China 1237
Italy 1181
Canada 716
Spain 650
Mexico 637
India 515
South Korea 477
Brazil 452
Netherlands 414
Australia 411
Russia 347
Taiw an 282
Sw itzerland 268
Belgium 248
Sw eden 230

WDI: Constant 1995 US$ billion, 2002

…accounting for 1.6% of the global
GDP in 2002…
United States 33.0%
Japan 12.6%
Germany 6.3%
United Kingdom 4.9%
France 4.5%
China 3.9%
Italy 3.7%
Canada 2.3%
Spain 2.1%
Mexico 2.0%
India 1.6%
Korea, Rep. 1.5%
Brazil 1.4%
Netherlands 1.3%
Australia 1.3%
Russia 1.1%
 …and ranks 26th in the world by total trade in
goods and services (US$ billion, 2002)…
Unite d S ta te s 2374
Ge rm a ny 1356
J a pa n 925
Unite d Kingdo m 850
F ra nc e 815
C hina 706
Ita ly 615
Ne the rla nds 574
C a na da 558
B e lgium 481
Ho ng Ko ng, C hina 478
Ko re a , R e public o f 377
S pa in 374
M e xic o 363
Ta ipe i, C hine s e 293
S inga po re 289
Aus tria 226
S witze rla nd 215
Ire la nd 209
Ma la ys ia 204
R us s ia n 202
S we de n 193
Aus tra lia 172
Tha ila nd 165
De nm a rk 155
India 151
B ra zil 133
No rwa y 131
S a udi Ara bia 119
P o la nd 115

WTO: US$ billion, 2002

 India has been one of the fastest growing
economies in the world over the last 20 years

Annual average growth rates of 10 fastest growing economies over

1980-2002 excl. small countries (pop < 10 million)

China 9.5

South Korea 6.8

Taiwan 6.6

Vietnam 6.5

Malaysia 6.3

Thailand 6.0

India 5.6

Indonesia 5.4

Cambodia 5.3

Pakis tan 5.2

Source: WDI
What does the Goldman Sachs BRIC Report say?
(BRIC=Brazil, Russia, India, China)

Goldman Sachs in their BRIC report have higher than historical projections for
Brazil and Russia and lower predictions for China…
9.5%
10%
8.5%
9% Historical (1980-2002) Goldman Sachs (2000-2050)
7.7%
8%

7%
5.6% 5.6%
6%

5% 4.2%

4% 2.9%
2.5% 2.6%
2.4%
3% 2.1% 2.2%
1.9% 1.8% 2.0%
1.8%
1.3% 1.3%
2% 0.9%

1%

-1% -0.1%
G erm any

R us s ia
J apan

C hina
Braz il

India
Italy

UK

US
F ranc e
 …leading India to emerge as the 3rd largest economy
in 2050 (1995 US$ billion)…

China 43926

US 35067

India 30209

Japan 6092

Brazil 5596

Note the big gap between the first three and the rest
Russia 5367

UK 3919

Germany 3816

France 3297

Italy 2185

Goldman Sachs: Constant 1995 US$ billion

 Projecting GDP using historical growth rates,
India would be the 6th largest economy in
2050
China 96178

United States 37781

Japan 19233

South Korea 16706

Taiw an 8662

India 7307

Germany 6458

France 4974

United Kingdom 3960

Italy 3111

Brazil 2598

Russia 339

WDI: Constant 1995 US$ billion

 Under GS assumptions, India would be the
world’s 3rd largest trader in 2050
China 13842

US 6969

India 5575

Russia 3018

UK 2054

Germany 2021

France 1421

Japan 1238

Brazil 1013

Italy 948

0 2000 4000 6000 8000 10000 12000 14000 16000

Goldman Sachs & WDI: Constant 1995 US$ billion, projected at

historical Trade-to-GDP ratios
 Using historical growth rates, India would be
the 10th largest trader in 2050
China 59.1%

South Korea 21.1%

Taiw an 15.5%

United States 14.7%

Japan 7.6%

Germany 6.7%

France 4.2%

United Kingdom 4.1%

Italy 2.6%

India 2.6%

Brazil 0.9%

Russia 0.4%
Will India Become an Economic Superpower?

India is already a large player.

It will become larger.
But it may not become one of three giants
 B. DOES IT MATTER IF
AND WHEN INDIA
BECOMES AN ECONOMIC
SUPERPOWER?
 India is already a population superpower

1601
1600
1418
1400
1262
2000 2050
1200
Population (millions)

1002
1000 India will be the world’s most populated country
by 2050; it’s population is expected to stabilize by
800 the year 2100 at 1.8 billion

600
420
400
282
228
176
200 127 100 146 118
58 50 59 61 60 64 82 74

0
Germany
UK

US
Russia
Japan

China

India
Italy

Brazil
France

Goldman Sachs
With a PC GDP of $ 494, India today ranks 128th in
the world

GERM ANY

US
UK
FRANCE J APAN

BRAZIL

ITALY

RUSSIA

The fundamental challenge facing India is not

to become an economic superpower but to
become rich and eliminate poverty.

CHINA

WDI: Constant 1995 US$, 2002

INDIA

0 10000 20000 30000 40000 50000 60000

 Alternative Scenarios

 If India grew at GS rates it would be the poorest of the BRIC and G6 countries
in 2050, but equivalent to a low-end high income country like Spain today
 If India grows at historical growth rates (6.5%) for the next 50 years, India
would have in 2050 a GDP PC of US $ 4564 (constant 1995 US$) equivalent
to a lower-middle-income country like Brazil today.
 If India reverts to the “Hindu growth rate” (3.5%), its 2050 GDP p.c. will be
US$ 1723, equivalent to Iran today.
Summary of scenarios
today 2050
Growth scenario 8% 6.50% 3.50%
PC Income (USD) 494 18731 4564 1723
Ranking of economy in 2050 11th 3rd 6th top 12
Ranking of PC income today 128th 23rd 44th 77th
C. WHAT MIGHT PREVENT
INDIA FROM BECOMING
AN ECONOMIC
SUPERPOWER?
 RISKS TO GROWTH

• So far, just doing trend analysis. But economic growth can

slow down as well as speed up. Countries can catch up, but
also be left behind.

• Argentina:
 1889 GDP pc = 91% of US GDP pc
 1999 GDP pc = 33% of US GDP pc

• What are the factors which might slow down growth in

India?
 1. MACRO SHOCKS
Has the economy been shock-proofed?
 2. SECTORAL CHALLENGES

Sectoral growth rates since Independence

(Percent)
50s 60s 70s 80s 90s
1 Agriculture and Allied 3.1 2.5 1.8 3.6 2.8
2 Industry* 6.3 5.5 4.1 7.1 5.7
3 Services 4.3 4.8 4.4 6.7 7.8
4 GDP (factor cost) 3.9 3.7 3.2 5.6 5.8
* Includes Construction
Source: Central Statistical Organisation
 2. SECTORAL CHALLENGES: Industry
India’s low share of industry in GDP
compared to East Asia.
100%
90%
33.3
80% 37.4
42.2
48.5
53.1
70%
69.5
60%
50%
22.1
50.9
40% 26.6 47.0
29.6
30%
28.6
20% 35.7
24.9
10% 17.3 15.6 15.9
1.9
0%
LDCs India OECD Sub- East Asia & China
Saharan Pacific
Agriculture Industry
Services Africa
WDI
3. GROWING UNEMPLOYMENT:
jobless growth?
Elasticity of Employment to GDP

1977-78 1983 1993-94

to to to
Sector 1983 1993-94 1999-00

1 Agriculture 0.45 0.50 0.00

2 Mining & Quarrying 0.80 0.69 0.00
3 Manufacturing 0.67 0.33 0.26
4 Electricity 0.73 0.52 0.00
5 Construction 1.00 1.00 1.00
Wholesale & Retail
6 Trade 0.78 0.63 0.55
Transport Storage &
7 Construction 1.00 0.49 0.69
Finance, Real Estate,
Insurance & Business
8 Services 1.00 0.92 0.73
Community, Social and
9 Personal Services 0.83 0.50 0.07
All Sectors 0.53 0.41 0.15
Source: Planning Commission Reports on Labour and Employment
3. GROWING UNEMPLOYMENT (cont):
Will moderate growth(%beUnemployed)
Millions Employed enough?
GDP Growth (%) 1999-00 2007 2012
6.5 397 436 467
(2.23) (5.61) (7.41)

8.0 397 442 482

(2.23) (4.27) (4.55)
Source: Planning Commission Reports on Labour and Employment
4. GROWING REGIONAL INEQUALITY
State GDP p.c. USD, 1999-00
Punjab 738
Maharashtra 715

Haryana 659

Gujarat 603
Tamil Nadu 582

Kerala 577

Karnataka 514
All India 494

West Bengal 474

Andhra Pradesh 465

Rajasthan 383

Madhya Pradesh 351

Uttar Pradesh 309

Orissa 282

Bihar 189

0 100 200 300 400 500 600

Central
700
Statistical
800
Organization
4. GROWING REGIONAL INEQUALITY
(cont).
GDP PC in constant US$, projected for the year 2050
using historical growth rates
Tamil Nadu 3765

Maharashtra 3460

Kerala 2771

Punjab 2352

Andhra Pradesh 2352

Karnataka 2258

Gujarat 2205

Haryana 1924

All India 1737

Rajasthan 1301

West Bengal 903

Madhya Pradesh 729

Uttar Pradesh 573

Orissa 466

Bihar 165

0 500 1000 1500 2000 2500 3000 3500 4000

Central
Statistical Organization
 5. POPULATION GROWTH
India’s Regional Distribution of Population will
Change Over Time
1991 2051
North
North
5%
5%
East East
15% 14%

"BIMARU"
41% "BIMARU"
48% West
West
14%
15%

South
South
19%
24%

Economic & Political Weekly, Vol. XXXVIII No. 45, November 8-14, 2003
 6. URBANIZATION
India’s urbanization has only just begun
90
Urbanization as a proportion of total population, year 2002 79.3
80 76.2

70

60

50
37.6 38.2
40
28.1
30 24.3

20

10

0
LDCs India China South East Latin America OECD
Asia
Source: WDI
 6. URBANIZATION (cont.)
 If India does grow rapidly, one would expect
about 75% of India’s population would be
urbanized by 2050
 Urban population in 2050 = 75% of 1.6 billion =
1.2 billion
 Urban population today = 28% of 1.002 billion =
280 million
 Urban population would increase by 920 million
by 2050 (almost 20 million new urban residents a
year)
 Can India cope with such rapid urbanization,
or will it stymie India’s growth?
7. ENVIRONMENTAL DETERIORATION
 A lot of environmental problems diminish
with growth
 But not all: e.g. water.

India - Per Capita Water Availability

(in cubic meters)

6000
Water stress
5000
Water scarce
4000

3000

2000

1000

0
1950 1990 2025

Source: www.cnie.org
 8. HEALTH THREATS: AIDS

Prevalence of HIV as a proportion of w orking population in 2001:

India next only to, but w ell below , Sub-Saharan Africa,
8.36
9
8
7
6
5
4
3
2 0.45
Water stress
0.64 0.67 0.80
1 0.10 0.10 0.19 0.23 Water scarce
0
 8. HEALTH THREATS (cont.): AIDS
But are parts of India only a decade or less behind parts of Africa?
HIV Prevalence: STD Patients in South Africa, Major Urban Areas, 1990-2000
Com pared to Selected States of India in 2002
(Median Prevalence in percent)

57.2
52.3 49.2 53.7
47.1
39.9
30.4
18.7 21.8
14.7 15.3 Water stress
9.5 11.3 13.6
5.6 6.2 Water scarce
1.6

Source: UNAIDS/NACO
8. HEALTH THREATS (cont.):
AIDS IMPACT

Water stress
Water scarce
9. WEAKENING GOVERNANCE

Water stress
Water scarce
 10. POLITICAL RISKS

 India is a stable democracy (cf. China – yet

to make the democratic traditions)
 But democracies can be unstable:
 Unstable governments

 Short tenures Water stress

Water scarce
 Rickety coalitions

 Civil violence (cf. Sri Lanka, Nepal)

 11. SECURITY RISKS

 Regional conflict
 Terrorism

Water stress
Water scarce
 12. GLOBAL RISKS

 Global recession
 Spread of global terrorism or other forms of
conflict
 Global warming or other environmental
threats to growth
 Any slowing down of global growth will
Water stress
Water scarce

tend to perpetuate the current economic

configuration.
WHAT SHOULD INDIA WORRY ABOUT?

 India should worry most about those risks or

challenges which:
 Will tip India from base to low case growth

(rather than high to base)

 Have a reasonable probability of occurring

 Are at least partially within India’s Water

Water stress
control
scarce
 2 leading candidates: AIDS, conflict
 IN SUMMARY: THE ANSWERS
 Will India become an economic superpower?
 On current trends, yes.

 Does it matter?
 Yes, but primarily as an indicator of prosperity.

 What might prevent it?

 12 risk areas identified, some very serious and

daunting. Lots of unknowns. Plenty of

Water stress

challenges to confront. Water scarce

 India is certainly heading in the right direction,

but into unchartered territory. Its voyage will be
one of the great voyages of the 21st Century.