Jun 14, 2016
HSBC backs India to drive global growth
Jun 14, 2016
An HSBC report has described India as the “obvious candidate” to push global growth amid a stubborn slowdown but said it will need sustained GDP expansion to reach, by 2025, the share of world GDP that China had at the height of its boom in 2005.
“If the West is not bouncing back to its former strength any time soon, where will growth come from? India is the obvious candidate,” HSBC economists said in a note. China as the economic engine has “begun to sputter” and India is the only other country with over a billion plus people and also grew “a tad faster” than its northern neighbour in the last year.
On a sobering note, it said that it is clear that India’s economy is not large enough to make up for a slowdown in mainland China but added that it holds great potential.
“India may struggle to attain, for now, the growth rates China achieved at the height of its boom. Still, don’t count the country out just yet: assuming things keep ticking as long as they have, by the middle of the next decade India’s economy will account for the same world share as China did in 2005, the year when the mainland really started to make itself felt globally,” it said.
The HSBC report said it is “tough” for India to match China’s boom-time growth rates, and recommended that the country will have to push its national investment rate up to achieve higher growth.
“China’s investment rate has always been higher than India’s (although by a relatively narrow margin in the late 2000s). To achieve China’s growth rate of the last decade, India would have to boost its investment rate by 10 per cent points or so of GDP,” it said, adding that this is not impossible.
It termed this as a “momentous shift” which will be taking place, and added that this is going by the share of world GDP in dollar terms. India will equal to China’s 4.9 per cent share of world GDP in 2005 by the middle of next decade, it said, adding that if the country grows faster, the date can be advanced.
The expectation comes days after official data suggested the Indian GDP grew 7.6 per cent in fiscal year 2015-16 on the back of a faster 7. 9 per cent growth in the last quarter.
The presence of a pro-growth, reform oriented regime at the Centre, along with fundamental factors like favourable demographics which make it among the youngest nation in the world, and large consumer base, is making analysts more confident about the India story, HSBC said.
China, which embarked on its reforms from the early 1980s, grew at double digits to lead the global growth on its shoulders after the post-Lehman crisis.
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