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India and China have consistently registered rates of growth of GDP of 8-10 per cent, while developed countries averaged 2-3 per cent.
So, given the way rate differentials explosively compound themselves over extended periods of time, there is nothing particularly incredible about China, already number two in 2010, being at the head of the GDP rankings in 2050 by a wide margin, according to recently released estimates of PricewaterhouseCoopers (PwC).
Though India, at number three, would still be well below the US, its climb from a distant 11th, to the extent that it materialises, would be so much more impressive; implying as it does an ability to bring about a 30-fold increase in GDP at constant prices, as compared to a 10-fold increase for China.
According to PwC estimates, India overtook Canada last year, will overtake Spain this year, and then Brazil, Italy and the UK, in rapid succession, in 2014, 2015 and 2016.
The trouble is that all this may be just pie in the sky.
India got into the game 12 years later than China, and is still to get its act together in respect of many factors of fundamental importance. To take one obvious example, 20 years after the 1991 reforms, we still depend on capital flows to finance current account deficits and build up reserves. Similarly, there is the whole tangled mess of agricultural productivity and food prices.
Then there is the unease generated by PwC's penchant for creative accounting. Though the discussion so far has been in terms of GDP at market rates of exchange, the PwC report itself gives pride of place to GDP in purchasing power parity terms (PPP). Going by this criteria, the big news is that ‘India will be far richer than the US in 2050'.
But this is sheer abracadabra. PPP measures of GDP, correcting as they do for domestic price differentials, are indeed useful as measures of well being — but only if they are expressed in per capita terms.
Taken as an aggregate, GDP at market exchange rates, tells us something about demand and supply conditions in an economy; the size of its market, its share in world production, etc. GDP at PPP tells us nothing.
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