Since the rapid rise of emerging market behemoths such as India and China during the last decade and a half, there is a game called ‘when will they top the Western economies?’ In this amusing game, we try to assess when a developing country (mostly China and India) will outgrow a western economy.
A Milestone for Eastern Dominance
The last time this happened was when China toppled the US as the worlds’ largest economy in 2014. Well…not quite.
Per the IMF, China produced $17.6 trillion of goods and services, $200 billion more than the US and we also found out that China surpassed the US with regards to Purchasing Power Parity (PPP). In real PPP terms, the Chinese economy has accounted to 16.5 percent of world’s economy, while the US lagged with 0.2 percent less.
This, of course, doesn’t mean that China is actually more dominant in the global economic sphere than America. But in the eyes of the Chinese and Western pundits who believe that China will lead the world in the near future, this is another milestone for Eastern dominance of the global economy.
The narrative of this century will be written in Asia.
I remember interviewing Jean-Pierre Lehmann, a professor of international political economy and the founding director of The Evian Group at the International Institute for Management Development (among his other credentials), some two years ago.
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Lehman, who specialises in the economy and development of China and India, told me that the 21st century belongs to these two superpowers. “The narrative of this century will be written in Asia. This is where most of the crucial occurrences in the economical field will take place,” he said. “30 years ago, the share of Asian economies was merely 30 percent of the global pie. Half way through this century, it will already reach 65 percent.”
India’s GDP Overtakes UK
This week, we learned that India’s economy has outgrown the UK economy, in terms of GDP. Apparently, India is now the world’s sixth economy, after United States, China, Japan, Germany, and France. This historical milestone was expected to happen only in 2020.
But the aftermath of the Brexit that devalued the British pound by 20 percent, along with India’s rapid growth rate, has allowed the sub-continent to bridge the gap much faster.
But beyond these comparisons (some disputed by pundits and analysts), there are various signs on the ground that support the notion of India’s rise over the declining Western economies. Take the software and services giant Amdocs. This week the Israeli business daily Calcalist revealed that the corporation now employs more people in India than in Israel and the US (its natural R&D centers).
These trends are a product of the interesting policies of India’s innovative prime minister Narendra Modi. His “make in India” policy is set to draw foreign investment, thus increasing the technological manufacturing by de-regulations and creating eco-systems for investors.
Another interesting move that Modi pushes is his revolutionary demonetisation plan, announced last month. Last November, the government announced that 500 and 1,000 rupee banknotes will be withdrawn from use in order to tackle the corruption and tax avoidance in the country. This step is already expected to hike the national GDP by 1 percent next year.
Having said that, and not to rain on Modi’s parade, India still has some deep and profound problems. Most of its territory lacks the infrastructure, technology and manpower to allow it to compete with Western countries. Not to mention its corruption problems and the loose rule of law. And that’s just naming a few.
So, will Lehman’s forecast of Asian dominance and Europe’s marginalization will come true? Will India take the lead in the continent? And what does it all mean for China? Time will tell.