The Hindu Business Line : BRIC report: Many ifs and buts qualify forecast

The Goldman Sachs report on Brazil, Russia, India and China (BRIC) states that India will be the third largest economy, after the US and China by 2050. The study assumes strong and stable macro economic policies, stable political institutions, high levels of education and openness as the fundamentals to the model used.

The report states, "There is a good chance that our projections are not met, either through bad policy or bad luck."

Ms Roopa Purushothaman, co-author of the BRIC report, while presenting the same here, raised concerns over the levels of secondary education in India. This is an important variable in the model and in comparison to others in the report, it is an area where India stands weak

Unless there is a marked improvement in the quality and reach of secondary education, the predictions of the report are unlikely to be valid.

Also important to note in the report, is the validity of application of the model in Asian economies. On applying the model to various economies as they stood in 1960 and comparing the current levels of these economies as against what the model would have projected, none of the Asian economies have shown parity. The actual GDPs are higher than that projected in Hong Kong and Korea and much lower in countries such as India.

The report categorically states that while India will be among the three largest economies of the world, its per capita income will still be low. In fact, this phenomenon is expected to be true for all BRIC economies, except Russia. Individuals in Brazil, China and India will continue to be poorer on an average than those in the G6 economies.

Despite these spoilers, why are Indians excited about the report?

In a country-wise conclusion, the report states, "While growth in the G6, Brazil, Russia and China is expected to slowdown significantly over the next 50 years, India's growth rate remains above five per cent throughout the period. With the only population out of the BRIC that continues to grow throughout the next 50 years, India has the potential to raise its $ inome per capita in 2050 to 35 times current levels. Still, India's income per capita will be significantly lower than any of the countries we look at."

Strength and stability of macro economic policies and political institutions over a 50-year period are not assumptions that can be shrugged away as a definite possibility. With changes in Government, there will be changes in macro economic policies and openness to global trade. Whether these changes will lead to favourable trade and macro economic conditions is a moot point.

In the event that all the assumptions of the model fall into place for India, the report does help in validating optimistic assumptions about the country's growth trajectory.

Whether the excitement the report generated among business and political circles is because it is added fodder to the "India is Shining" propaganda is worth a thought. Ms Purushothaman, shocked at the attention the report has generated in India, calls the timing "co-incidental."