Back in 2003 Goldman Sachs provoked a storm when it published its report on the four BRIC economies: Brazil, Russia, India and China. It concluded that, in terms of GDP, China would overtake the US by about 2045, and India would overtake Japan, to become the world’s third largest economy by 2032.
At the time it didn’t seem possible, and yet now, just a few years later, hardly any eyebrows were raised when it revised those estimates, and yet the new revisions are even more staggering.
Goldman Sachs now reckons India will overtake the UK, France and Italy within ten years, Germany by 2009, Japan by 2025 and the United States by 2042.
The revised report from Goldman Sachs said: “There has been a structural increase in India’s potential growth rate since 2003 on the back of high productivity growth.
“We project India’s potential or sustainable growth rate at about 8% until 2020. The implication is that India’s contribution to world growth will be even greater (and faster) than implied in our previous BRICs research.”
The report added: “The recent growth spurt was achieved primarily through a surge in productivity, which we believe can be sustained. India is well-positioned to reap the benefits of favourable demographics, including an #96;urbanisation bonus’, and a further rise in capital accumulation, in part from an upsurge in foreign direct investment.
“The underlying reasons are: increased openness to trade, investment in information and communication technology, and greater financial deepening. These factors still have some distance to run.”
Since the Goldman Sachs report said that India would overtake the US by 2042, to become the world’s second largest economy, the unstated implication is that China too is likely to enjoy faster growth than previously predicted.
The recent purchase of Corus by the Indian firm Tata Steel is, of course, a good example of the new confidence and success enjoyed by India.
But, many fear the rising might of the BRIC countries, thinking it will somehow condemn the established superpowers to economic backwaters.
While there are clearly dangers in the emerging economic power structure, with history telling us that conflict often arises when there is a change of economic status, the economist should welcome the improving India prognosis with open arms.pgt;
Goldman Sachs has also published a report saying that the emergence of India and China is having a deflationary effect on the global economy; in other words, we can put the relatively low rate of interest enjoyed in the UK, EU and US down to India and China.
And while their growth is currently creating balance of payments deficits for the UK and US, this should change as the economies get wealthier and more of their citizens can afford to buy the consumer goods and services produced in the West.
For the UK, with its cultural and linguistic links, the development of India is an outstanding opportunity. No doubt the City will continue to boom under this influence, but across other sectors the UK is still falling short.
So the report for India is as follows: “excellent progress - on course for an A*”. But for the UK: “Must do better”.
For further information
DreamingWith BRICs: The Path to 2050 - original 2003 report
Goldman Sachs
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