The Hindu Business Line : India's growth set to rise, China's to fall

China's growth depends largely on the growth of its exports, particularly to the US, where growth has fallen more sharply than in Japan and other developed countries in Europe. India's exports, despite their rapid increase, still account for only one-twelfth of GDP.

Forty-eight per cent of exports go to Asian countries other than Japan. Europe and the US account for less than 40 per cent. Private consumption expenditure is a more important driver of India's growth than exports. One reason for this is that bank credit is easily available to middle and high income Indian households.

Consumption loans are harder to come by in China. Large balance of payments surpluses have been nudging China's forex reserves towards the one trillion dollar mark.

This has left the economy flush with liquidity, which, the government fears, has led to potentially disastrous speculative investments.

Bursting bubbles could give the economy a sharp jolt. To avert this, China is making a deliberate effort to slow the growth of its overheated economy.

It has also begun revaluing the renminbi to reduce forex inflows, reduce reliance on export earnings and gradually made domestic consumption expenditure a more important driver of growth.

India has a better track record. It has smaller `surplus' forex reserves, and has been more successful in easing pressures on liquidity by letting off steam. The most visible example of this is releases of foreign exchange to Indian companies to finance acquisitions around the world.

In other words, a critical reason why India might narrow the gap over the next three to four years, and then go on to surpass Chinese growth, is simply that India is trying hard to increase growth. China is consciously trying to slow it down. This reversal of roles will leave one thing unchanged.

Accounting for only 13 per cent of world GDP, the two countries together account for half the growth in world GDP.