India, China and USA: 2007-2017
S.V. Char
Trend Analysis
Over the next ten years India’s nominal GDP will grow from the present $1.00 T to $2.4 to 2.6 T at the current compound rate of nine to ten percent annual growth. A less optimistic statistical secular linear trend projection based on actual GDP for the 1997-2006 ten-year interregnum (Table 1) would place India’s GDP at 1.5 T in 2017. (Totally three estimates are presented here for each of the three countries.) India’s 11th FY Plan is predicated on a 9-10 % growth rate as doable.
Table 1:
| Country | GDP in 2006 Trillions of Current US Dollars | Expected Growth Rate % | Multiplier from Future Value Table | GDP in 2017 Less Optimistic Scenario in Trillions of | GDP in 2017 Trillions of Current US Dollars |
| | 1.000 | 9 to 10 | 2.367 and 2.594 | 2.367 | 2.600 |
| | 2.668 | 9 to 10 | 2.367 and 2.594 | 6.315 | 6.921 |
| | 13.202 | 2 to 3 | 1.219 and 1.344 | 16.091 | 17.740 |
| World Economy | 66.000 | 3 to 4 | 1.344 and 1.480 | 88.704 | 97.680 |
Note: GDP Data for 2006 compiled from IMF and
World Bank sources and Estimates computed by SV Char
China’s nominal GDP, burgeoning at an average compound rate of ten percent will grow from the present $2.668 to between $6.3 to 6.9 T during the same period. A less optimistic trend projection based on actual GDP for the 1997-2006 ten-year period would place China’s 2017 GDP at $4.55 T in 2017.
USA’s nominal GDP increasing at a relatively lower two to three percent compound rate will grow from the present $13.20 T to $16.1 to 17.7 T. However, more optimistically, as it turns out, a trend projection on the basis of actual data for the 1997-2006 period would take US GDP to 18.2875 T by 2017.
The inevitable deduction is that barring discontinuities America would continue to be the number one economy in the world in 2017 and even much beyond that year, unlike rough predictions that China would overtake it. Even ten years hence this would not materially change America’s dominant position. The economic distance between India-China and the USA, in terms how much bigger the US economy would be, is reduced. For instance, currently, US GDP is about 13x larger than India’s and in 2017 it is likely to be about 6 to 7x larger. US GDP is currently almost five times the China GDP and this is likely to come down in 2017 to about 3x larger.
In an interview with Money Control magazine (http://news.moneycontrol.com/india)
Jeffrey Sachs offers the view that by mid-century India’s per capita could be about a quarter that of the USA, say roughly $10,000. India’s population by 2050 is likely to be 2.3 billion persons, the current population of 1.1 billion, approximately more than doubling by that time. The product of ‘Per capita income x the 2050 population’ would be about $23 T when America is likely to have a GDP of $34.95 T, 1.5x more, assuming no discontinuities. In this light, Jeffrey Sachs need not be sanguine that “…..By the mid century I think India could overtake US by absolute size (of GDP).” Identical remarks by Sachs about China’s GDP overtaking America’s do not seem to hold water even if one is speaking in terms of PPP-based GDP estimates.
Limits to Growth
This inference is further reinforced when economic growth in China and India bumps into limits to growth factors such as natural resource constraints including drinking water, discontinuities in technology, equalization or leveling of price advantages as a consequence of world trade, inflation in developing countries, ennui with western pattern of growth that seems to generate much waste and pollution.
There is also the cost of economic growth serving to subtract from the GDP in China’s case, as much as 5 to 6 percent. World Bank’s ‘Cost of Pollution in China’ Report (2007) deals with the physical and economic cost of air and water pollution in China in terms of “pollution-related diseases, pollution-exacerbated water scarcity, wastewater irrigation, loss of fisheries, loss of crops, material damage” and so forth. Health costs of such pollution is estimated at 4.3 percent of GDP and non-health impacts of pollution at 1.5 percent or a total of 5.8 percent of China’s GDP. The poor are affected more than others. Not surprisingly, there were 50,000 pollution-related disputes in 2005.
Some authors such as Philip Lane and Sergio Schmukler (2007) are relatively more conservative in projecting future growth rates of China and India. Between 2005-2020 they cite the Winters and Yusuf (2007) projected growth rate of 6.6 and 5.5 percent for China and India respectively. The projected shares of the two countries in the world GDP are expected to be 8.2 percent for China and 2.4 percent in 2020. My Table 1 projection for 2017 gives China 7.1% share and for India, 2.7%, compared to US share of 18.1%.
A dramatic increase in the cost of key inputs such as oil can have a devastating effect on all costs across the board. More than any other country, China’s drawings of resources such as oil, coal, iron ore, copper, tin, bauxite, nickel have multiplied in very short periods and world commodity prices have shot up, the most dramatic being crude oil, hitting a prohibitive $100 earlier this week. In a linear setting, China is expected to emerge as the largest car producer by 2015. However, planetary resources are finite. Prices would have to give in if demand-pull pressure increases. If input costs and fuel prices become so unaffordable, will China continue to make gas-based cars? Do they have the technology for electric cars? If not, China may not emerge as the largest car producer by 2015. Repeat this scenario for almost every other product: wood-based articles and the disappearance of forests in China with 90% of wood products of China being exported to the USA. China alone accounted for 90% of the sharp increase in world coal consumption during the 3-year period between 2003 and 2006 when the boost in consumption was as much as during the entire 23-year period, 1980-2003
China’s development has won admiration. However, Quality is a large as life issue: pet foods making dogs sick, Thomas trains and Mattel dolls with a toxic paint coating, ginger with pesticide residue etc. The fact remains China has been somewhat apathetic to factors such as environment, quality and safety. It is high time to treat environment as a key limited resource in economic growth. There is only one planet and it cannot support American style consumption for all people, not even a fraction of it.
America’s own growth is tottering into a Japanese type recession or worse and this could confine America’s 2017 GDP to between $14.0 to 14.5 T. Current economic issues hobbling the US economy are: the twin deficits, de facto dollar devaluation, the bursting of the housing bubble, the sub-prime mortgage lending crisis, the recessionary trends in the economy, loss of incomes due to consolidation of businesses, the Iraq and Afghanistan commitments, global warming constraints, and the movement to apply brakes on consumerism or growth for growth-sake.
PPP based GDP
PPP based GDP calculations cannot be projected into the future on account of unpredictability of prices that form the basis of calculating the PPP. In terms of PPP-based GDP, India’s economy is as large as $4.04 T which would make India the third largest GDP in the world, next only to that of the USA and China, and followed by Japan, Germany, UK, France, Italy, Russia and Brazil. (IMF WEO Database) These PPP estimates for India and China are now under revision because the GDP estimates somewhat ignored the more recent inflation in those economies. For instance, China’s PPP GDP was based on a 1980s survey of Chinese prices. (Eduardo Porter, NY Times 12/09/2007.) Such an omission of inflation in China and India would overestimate the PPP based GDP. Based on the work of Albert Keidel (Carnegie Endowment for International Peace) that in turn used the ADB exchange rates, the new GDP numbers are likely to be some 40% lower.
Tertium Quid
Secular trend analysis establishes in unmistakable terms that American hegemony as a world economic and geopolitical power would stretch far into the future, beyond any horizon date. Current discussion of this fact is clouded by erroneous combining of PPP data with nominal data, likes being not compared with likes. Current discussion also ignores the real limits to growth in terms of both depletion of both renewable and non-renewable resources including oil, coal, iron ore, bauxite, etc., and of even as critical an item as water. Yet another major lacuna relates not loading the environment as a resource key factor in the economic development equation. The results are therefore confounding.
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