India’s lead over China as the world’s fastest growing economy will widen

As per a report by Organization for Economic Cooperation and Development (OECD), India’s lead over China as the world’s fastest growing economy will widen in upcoming years. The GDP growth of India will increase to 7.5 percent by 2020 from 7.25 percent, the estimation for 2019. On the other hand, China is expected to register economic growth of 6 percent in 2020. However, escalation of US-China trade war is expected to hurt the economic growth of China very badly and if a resolution does not comes out, growth of slowdown further.

OECD is among the most respected think tanks around the world and known for data-based empirical research. “India has the fastest growth among G20 economies. Accommodative monetary policy and additional fiscal support will boost economic growth despite subdued demand from partner countries,” read the report. Indian economic growth is driven by domestic demand, unlike China where investment and exports drive growth. The trade war across the world including the US-China one will hurt China but India would not be hit by it. In fact, if the Modi government implements some fundamental land and labor reforms, India could benefit from a US-China trade war.

According to the OECD report, the economic growth in India will be primarily driven by domestic demand as it always has been. But fiscal stimulus by the government, direct benefit transfer to farmers, structural reforms like GST and IBC will aid the economic growth. The two basic macroeconomic measures of inflation and Current Account Deficit will remain in control given sliding oil prices and appreciation of the rupee.

On the condition of the Chinese economy, OECD said, “[There are] Signs of a slowdown including the weakening of private investment, in particular, real estate investment.” In addition to that, the Chinese economy faces double whammy trade war and weakening space for economic stimulus. 

China dominated the global economic growth for the last four decades. Deng Xiaoping, the second paramount leader of the People’s Republic of China who took over the legacy of Mao Zedong started the economic liberalization of Communist country and named it ‘Socialism with Chinese characteristic’. Since the early 1980s, the country posted near double-digit growth every year and sometimes even crossed that. The compound annual growth of four decades took the Chinese economy to the second largest rank after the United States. However, in the last few years the economic growth of China slowed down and India overtaken as fastest growing economy in the world.

As per a report from Centre for International Development (CID), India tops the list of fastest-growing economies. India is expected to grow at 7.9 percent annually in the following decade, which is more than that of China. The report from Centre for International Development (CID) mentioned that countries like India and Vietnam will be growing the fastest in coming days because they have diversified their economies into many complex sectors.  According to the Harvard report, “India tops the list as the fastest growing country for the coming decade, at 7.9 per cent annually, in the economic complexity growth projections. India has made inroads in diversifying its export base to include more complex sectors, such as chemicals, vehicles, and certain electronics”. The report projected China to grow at 4.9 percent for the next decade. The US is expected to grow at three percent while France at 3.5 percent. 

Given the fact Modi government has come in government with an absolute majority, some bold economic reforms are expected by upcoming years and therefore economic growth will increase further.