Economic Times interviewed Arvind Subramanian, Senior Fellow, Peterson Institute for International Economics. Arvind has previously indicated that on a purchasing power parity basis China has already passed the US economy 2 years ago.
Arvind – Over the next 10 years, the BRICs’ share of world GDP will go up. In market terms, it is about 18% of GDP, which will go up to about 25-26% over the next 10 years and even to about one-third by 2030. In PPP terms, it is about 30% of world’s GDP at the moment. By 2020, it will be about 37%-38% and going up to as much as 45% by about 2030.
Economically, currently China is two-thirds of the total BRIC economy.
Arvind has derived an index of economic dominance that includes GDP, trade and creditor-debtor status. For the next 20 years, Brazil and Russia figure nowhere in the top 5-6-7-8 countries.
By 2030, India will become the world’s third most economically dominant country the way I [Arvind] measure dominance and the reason for that of course is that going forward, one would normally expect that India will grow faster than China just by virtue of the fact that India is actually poorer now than China. So, what China accomplished over the last 20-30 years, India should be able to do going forward with appropriate conditions.
India will never be as open a country as China has been. India is a relatively closed economy and will never have the external financial strength that China has. China has been accumulating reserves based on running surpluses. India is a deficit country on the external side. So we will always be vulnerable on that score. So in the dominance stakes, India will come close to but never really catch up with China.
Arvind Currency Predictions
Arvind Subramanian: I have a very simple way of saying where currencies should head over 5 and 10 years. The fact is that currencies of India and China will be unambiguously stronger over the next 5 to 10 years. In the case of India, it is going to be because growth is going to be much more rapid than the rest of the world, including other competitor countries. China will have an additional benefit that will strengthen the currency and in my book also I have predicted that the renminbi will start becoming a reserve currency gradually eclipsing the dollar over time. So quite apart from any strengthening of the Chinese currency that can happen because China is going to remain dynamic, although little less dynamic than in the past, it is going to have the additional benefit that its currency will become a reserve currency so that trade is denominated and settled in renminbi. Currencies are pegged more closely to the renminbi and eventually also renminbi becomes a kind of relatively safe haven for investors in the medium term.
Biggest Risks for each of the BRICs
What is the single largest risk you see for each of the BRIC economies?
Arvind Subramanian: Will the political transition happen and will it happen with minimal political upheaval or with major political upheaval, that is the billion dollar question for China. For India, the big question is can our democratic system combined with the decentralisation of decision making is resilient enough to create good governance, a modicum of good governance and minimise corruption? In Russia, the big problem is this kleptocracy that is ruling Russia and that has to change. We have crony capitalism of the worst sort in Russia. Can that change, is the big question for Russia. For Brazil, the challenges are a bit more subtle. It has this whole macroeconomic vulnerability which is just getting over. So these would be the kind of big challenges for each of these countries going forward.
Related Background Information
China revised its 2011 GDP data on Wednesday. GDP growth was revised up by 0.1 percentage points, from 9.2 per cent to 9.3 per cent The service sector grew 9.4 per cent last year, revised up from 8.9 per cent. This extra Rmb172bn was enough to cover smaller growth in agriculture (4.3 per cent from 4.5) and manufacturing (10.3 per cent from 10.6). The Chinese economy in 2011 reached Rmb47.3tn, or $7.45tn, nearly half the size of the US economy, at $15.09tn. Various new predictions are for China’s GDP growth to be about 7.5% in 2012 and 8.0% in 2013.
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