India will be the base to the economic pole of global growth over the coming decade, remaining ahead of China, according to a Harvard University research.
According to the Harvard University’s Center for International Development (CID) growth projections, India will feature on top of the list of the fastest growing economies till 2025 with an average annual growth of 7.7% for many reasons.
China’s rapid growth rate over the past decade has narrowed the gap between its complexity and its income, which researchers suggest is the sign of slower growth,” the CID research explained. The growth projections still have China growing above the world average, though at 4.4% annually for the coming decade, the slowdown relative to the current growth trend is significant.
“The economic pole of global growth has moved over the past few years from China to neighbouring India, where it is likely to stay over the coming decade,” says CID analysis. The only other country to grow faster would be Uganda at 7.73%.
The research has attributed India’s prospects to its potential to diversify into newer areas of production and export. The country has been diversifying its export base to include products from other sectors, such as chemicals, vehicles, and certain electronics.
“The major oil economies are experiencing the pitfalls of their reliance on one resource,” said Ricardo Hausmann, director of CID, professor at the Harvard Kennedy School (HKS), and the lead researcher of The Atlas of Economic Complexity. “India, Indonesia, and Vietnam have accumulated new capabilities that allow for more diverse and more complex production that predicts faster growth in the coming years.”
Uganda joins three other East African countries in the top 10 fastest growing countries, though a significant fraction of that growth is due to rapid population growth. On a per capita basis, Uganda is the only East African country that remains in the top 10 in the growth projections, though at 4.5 per cent annually its prospects are more modest.
The new data reveals a decline in China’s exports. China’s economic complexity ranking also falls four spots for the first time since the global financial crisis.
“Economic complexity…captures the diversity and sophistication of the productive capabilities embedded in its (the country’s) exports and the ease with which it could further diversify by expanding those capabilities,” explained the CDI report.
Even though China ranks better than India in economic complexity, it fell four spots to land at 23. Meanwhile, at 46, India is more diverse in it political, institutional, geographic, and demographic dimensions. This gives it more room to diversify into newer and more complex products, the report stated.
Let us have a look at the Economic Complexity Index (ECI) that forms the basis of the growth projections.
According to Dale Jorgenson (the Samuel W. Morris University Professor at Harvard University) research analysis, In both countries, money made all the difference. The investment stream was kick-started by a series of systemic reforms that began in China in 1978, as Deng Xiaoping opened up the country to foreign investors and allowed entrepreneurs to start businesses, and in India during the early 1990s, as the IMF called for the country to reduce import tariffs and taxes, deregulate markets, and allow greater foreign investment. Both implementation of those reforms and subsequent investment flows came more gradually to India, helping explain why its growth lagged China’s.
Now that India’s reforms have begun to catch up, Dale Jorgenson credited the relative youth of the Indian population for recent gains. “India’s more favourable demography pushes up the hours worked and productivity components,” he said. “Those factors have led to India overtaking China” in the race to the world’s fastest growing economy.