India is projected to become the fastest-growing economy in the world by 2010, clocking a growth in gross domestic product (GDP) of 8 per cent.
China would by then have been pipped to second place, with a GDP growth rate of 7.5 per cent in 2010, says the World Bank's report 'Global Development Finance 2009', released on Monday.
This means that India is likely to be the country to have rebounded the fastest from the shattering impact of the global financial meltdown.
Although the global lending agency has painted an unusually stark picture of the state of the world's economy, and has sharply increased its estimate of the impact of recession on global economic growth as a whole, India and China have emerged as beacons of hope amidst the prevailing gloom.
For the world economy as a whole, the report has sharply increased its estimate of the slowdown.
World GDP is now estimated by the bank's economists to shrink by 2.9 per cent in 2009, sharply up from its earlier projection of a 1.7 per cent decline.
For 2009, the World Bank has projected 5.1 per cent GDP growth for India, the slowest in six years. However, the bank gives its projections for the calendar year, while the government gives data for the financial year.
Historically, the World Bank has tended to be somewhat conservative with its India numbers. India's economy grew by 6.9 per cent in 2008-09 - the government itself had predicted 6.7 per cent growth - against the Bank's projection of 6.1 per cent for 2008.
In the interim Budget presented this year, the government has estimated GDP growth at seven per cent, eight per cent and nine per cent for the years 2009- 10, 2010-11 and 2011-12 respectively.
"If the green shoots persist, 6.5 per cent is doable for the current financial year," said Shubhada Rao, chief economist of Yes Bank. She felt that any fiscal stimulus from the government will work best if focused on areas which can become self sustaining.
Boosted by the two Asian powerhouses, developing economies as a whole are expected to grow by 1.2 per cent this year.
If these two countries are excluded, GDP in the other developing countries would actually shrink by 1.6 per cent, throwing millions more into poverty and heightening the risk of financial instability in the region, the report warned.
In fact, India and China could together help power the world out of recession.
"Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit," said Justin Lin, World Bank chief economist and senior vice president, Development Economics.
This view is echoed by India Inc. Said Anjan Roy, adviser, economic affairs at trade body FICCI, "Undoubtedly, the economies of India and China are bright spots in the present economic environment.
In case of India, the inherent domestic consumer market is a big pull factor. The economy also has a fairly balanced structure in which industry, services and consumption are evenly placed. In case of China, the economy is heavily dependent on exports but it has launched massive stimulus packages that will see the economy through in turbulent times." The rapid rebound in India and China is expected to change the fortunes of the rest of the world's economies. With India projected to grow at eight per cent and 8.5 per cent in 2010 and 2011 respectively, and China predicted to clock 7.5 per cent and 8.5 per cent growth rates during the same period, the rest of the world is also expected to hit positive territory as far as growth is concerned, although at a much slower pace.
World GDP, after shrinking 2.9 per cent - the worst fall in record - is expected to grow by two per cent and 2.3 per cent in 2010 and 2011 respectively.
"To break the cycle and revive lending and growth, bold policy measures, along with substantial international coordination, are needed," the World Bank said.
The big worry is the huge ballooning in money supply world-wide, due to the massive stimulus packages auctioned by most countries, including India.
With recovery, this poses the threat of a massive surge in inflation, which will have to be tackled with policies which soak up the excess money without crimping growth.
"To prevent a second wave of instability, policies have to focus rapidly on financial sector reform and support for the poorest countries," said Hans Timmer, director of the bank's Prospects Group.
"The worst of the contraction in global GDP is over and we may see some more green shoots of recovery as destocking gives way to inventory rebuilding and fiscal and monetary stimulus starts to have an impact. However, growth over the next two years will be marked by a high degree of volatility, with a substantial slowdown of quarter- on- quarter growth rates once stimulus fades," warned Manoj Vohra, director of research at the Economist Intelligence Unit.
Source: Business Today
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