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India, China and Growth Rate

In last couple of years, India is boasting about its highest economic growth rate in the world, surpassing that of China

Apr 30, 2017
By Dr. Susmit Kumar
In last couple of years, India is boasting about its highest economic growth rate in the world, surpassing that of China. Economists world-wide are predicting that India’s growth rate would surpass that of China now onwards, resulting in India’s GDP to be second largest in the world by 2040, behind China and surpassing the US. Indians use this data as a ticket to the super-power status. But there is a fundamental difference between the growth rates of India and China. Behind its exemplary growth rate, India has trade deficit every year in last more than two decades whereas China has trade surplus in the same period. As history has shown us, Indian economy has potential to collapse in an economic crisis whereas Chinese economy can withstand it.
After the sharp devaluation of the Indian rupee and double digit inflation during 2011-13 due to high crude oil price, some economists even started to write the obituary of the Indian economy (read: "None of the experts saw India's debt bubble coming. Sound familiar?", The Guardian, UK, August 26, 2013; ‘Fragile Five’ Is the Latest Club of Emerging Nations in Turmoil, New York Times, January 28, 2014). One point worth noting is that Russia and China were not included in the new club of “Fragile Five”. Both Russia and China have been running trade surpluses since early 2000s. Had high crude oil price persisted for couple of more years, it was certain that India would have had to go to the IMF to take loan which would have destroyed the Indian economy for next one decade or more, due to the IMF’s bitter medicine of getting rid of subsidies to balance the budget, significant increase in the interest rate and selling the crown public sectors to Wall Street bankers at throwaway price.
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