HT Home / Blogs Home > Terminal 3 / world / Indian economy is set to perform – regardless of BJP-CPM

If you ignore, for a moment, the ideological and strangely opportunistic protests by the BJP-CPM combine, you will find that in the long run they are irrelevant. Recent studies of high growth economies show that although the Indian economy took a hit from the global financial crisis, it is on course to becoming the 3rd largest economy in just over 20 years.

According to an Ernst and Young study of 25 rapid growth markets (RGM), India was the 10th largest economy in 2011 and will become the 3rd largest in 2035. In 2011, the 3rd largest was Japan. In 2035, Japan will rank 4th. However, the study confirms what a lot of others have forecast about the Indian economy for this year – that it will be “relatively subdued.”

Long-term demographic trends are favourable to Indian growth. In 2011 it had just under 15 workers for every person over 65 years of age – a very high proportion of young people. In 2021 the figure will come down for all RGMs, and in India it will be around 10. Interestingly, in 2036, India will still have as many as upto 8 workers for every person over 65 – the best demographics after South Africa.

The figures for enrolment in secondary education – a key driver of economic growth – are instructive. In Brazil only 25% of secondary school age children were in education in 1971, 50% in 1990 and 100% in 2010. In China the figure has grown from 50% in 1971 (it fell in 1990) to over 80% in 2010. The Indian figures show a steady rise from around 25% in 1971, 40% in 1990 to just over 60% in 2010.

India will trail behind in the number of households with annual incomes of more than $30,000 (Rs 16 lakh at the current exchange rate). In 2020, there are expected to be around one crore Indian households on such incomes, compared to 3 crore Chinese and 1.5 crore Brazilian and Russian households.

However, it is in the area of long-term GDP forecasts where India performs spectacularly, overtaking all other countries. From 2011 to 2036, India averages a 7% per year growth rate, slightly ahead of even China. Much of this growth will come from foreign direct investments of the sort that are now expected to flow with the liberalisation of the multibrand retail sector.

The trouble with China, says Robert Ward, director of Global Forecasting at the Economist Intelligence Unit, is its export-dependent growth model. That model, he told a recent Economist summit of high growth markets, has “actually died” — killed off by the global financial crisis.

The contrast with India’s domestic consumption-led growth is well known. Therefore it’s not surprising that Walmart made a radical change to its business model when entering India by tying up with Bharti Enterprises in 2007. According to Pankaj Ghemawat of the IESE Business School in Barcelona, who has studied Walmart since 1986, the idea that Walmart would change its basic business model in order to enter a country “was unthinkable” at the time.

Walmart’s decision to focus on the supply chain and logistics while allowing its Indian partners to own and operate the stores marked “a fundamental business model modification,” Ghemawat told the Economist summit. “It means that Walmart, after the weekend’s announcements is a little bit better positioned than it would be if it were trying to get off to a standing start in the Indian market following the new measures (in multibrand retail).”

(19 votes, average: 2.53 out of 5)

 Loading ...