'India to grow faster than China'
TNN | Oct 25, 2011
NEW DELHI: India is expected to record higher growth than China in 2013 and the two Asian powerhouses are expected to be less impacted among the 25 rapid growth markets in case of a deterioration of the Eurozone debt crisis, a report by Ernst & Young said on Monday.
The first Rapid Growth Markets (RGMs) forecast released on Monday attributes India and China's ability to better withstand a likely slowdown to the large size of their domestic markets and the effects of lower oil and commodity prices. The forecast pegs India's real GDP growth rate at 9.5% in 2013 followed by China at 9%. In 2014, India is expected to grow at 9% and China at 8.6%. In the current fiscal year, the Indian economy is expected to slow down to 7.2% from 8.2% achieved in 2010. A modest recovery to 8% is expected in the 2012 calendar year, the report said.
"While the overall outlook for India is positive, the country will need to address rising inflation. Provided India's inflation does start to fall back by the end of this year, and the US and EU economies do not slip back into recession, the 'soft patch' for Indian growth should be relatively short-lived. Once inflation is in check, and interest rates are no longer rising, consumers will be more willing to spend, supporting a general improvement in the business environment, with growth steadily accelerating during 2012," the report added.
India enjoys an advantage in its high savings and investment rates, currently a third of GDP; a relatively low GDP per capita on purchasing power parity giving significant potential for growth and continuing industrialisation and urbanisation, it said. "India's consumption-led economy continues to make the country a highly attractive investment destination in the short-to-medium term.
Its domestic demand-driven growth model has helped the country weather the volatility in the global markets, providing significant growth opportunities to businesses," said Farokh Balsara, partner at Ernst & Young India.
The RGMs are expected to grow collectively by 6.2% this year, almost four times more than the growth expected in the Eurozone. While the overall outlook for the RGMs is positive, these economies also have to deal with a number of challenges including inflationary pressures arising from overheating; managing the impact of capital inflows and ensuring that their infrastructure is sufficient to support long-term growth.
In the case of a disorderly Eurozone debt crisis that leads to a prolonged recession in the Eurozone and a stagnation of growth in the US in 2012-13, the forecast believes GDP growth would be cut to 3.2% across the Rapid Growth Markets in 2013, much lower than the 6.2% which is currently expected.
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