InvestorQ : Is it true that the IMF has raised some serious questions about how India will compete with China in terms of growth?
diksha shah made post

Is it true that the IMF has raised some serious questions about how India will compete with China in terms of growth?

3 years ago

Some very interest points were brought out in the IMF World Economic Outlook which was presented this month. Broadly, the report has focused on three things; the economic comparison with China, the supply chain constraints and the low per capital income.

The China gap may just be widening further now. For the last three years, India consistently prided at being able to grow faster than China. Even when China was showing signs of slackening, Indian economy continued to grow at an extremely rapid pace.

However, COVID-19 has changed that equation in favour of China. India may, according to the IMF end up with the biggest contraction in FY21 among large economies. IMF projects Indian GDP to contract -10.5% in FY21, something in sync with what rating agencies state.

There is another side to the concern. According to the IMF estimates, in the calendar year 2020, China may end up with positive growth of +1.5% and may be the only large economy in the world to expand. That will be a huge advantage for them when India is contracting.

The year 2020 will likely ensure that the growth advantage which India had gradually built over China in last few years would be totally negated. IMF avers that while China may recover very rapidly, the recovery process will be slower and more laboured for India.

This also puts a question mark over the $5 trillion economy dream that India had built up. The big debate in India was when the Indian GDP will scale $5 trillion. That was some basic maths. With GDP of $3 trillion in 2019, 7.5% growth would reach the magic figure in 5 years.

Things have changed. After the likely contraction in FY21, India would be back to square one only by 2023, so 3 years would be lost. Then only the growth will start, so $5 trillion GDP could really be some time away.

Then there are assumptions that demand will pick up in a big way and Indian companies would invest aggressively. These are far from axiomatic. In short, the focus of the Indian economy has gone away from growth. It is now about survival, and that is the problem.