The Hindu Business Line : World GDP growth hinges on India, China

INDIA and China rank 154th and 121st in a listing of the 230-odd countries ranked by per capita GDP. So no matter how rapid the growth of these countries, it would do little to boost the growth of the world economy. Right?

Not really. Low as per capita GDP for India and China may be ($3,100 and $5,600 respectively), their share in world GDP is around 6 per cent, thanks to their billion-plus populations.

The other eight in the top 10 countries of the world ranked by total GDP — the US (No. 1), Japan (No. 2), Germany (No. 3), UK (No. 4), France (No. 5), Italy (No. 7), Spain (No. 8) and Canada (No. 9) — together account for 66 per cent of world GDP. But their sustainable rate of growth is generally around 2 per cent a year, compared to 7 per cent and 10 per cent for India and China respectively.

Because of this, the share of India and China in incremental world GDP (which, at the rate of 4 per cent a year, amounts to $1.6 trillion a year) is 13 per cent, almost double their weight in total world GDP.

In contrast the other eight countries in the top 10, which have a 66 per cent share in world GDP, have only a 33 per cent share in incremental GDP. In the absence of a major breakthrough in technology, this scenario is likely to remain unchanged over the next four or five decades. This is because of the as yet relatively virgin markets in India and China and high rates of return available on capital invested there as compared to investments in developed economies.

Two conclusions emerge. First, growth of world GDP is more critically dependent on the rate of growth in China, and, more particularly, India than on the other eight countries in the top 10 - which are already functioning at near-peak potential.

Second, though India and China will increase their ranking in world GDP at a relatively slow pace, their rank in terms of per capita GDP (and therefore disposable personal income) is going to shoot up in leaps and bounds.

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