India Lags Behind China
Average Indian economic growth during the 1990s was approximately 6% per year, lower than the 10% per year average that was achieved by China. In the previous two decades, even before the start of China’s “economic miracle”, the gap between China and India in terms of average economic growth was actually even wider than in the 1990s. Though there have been periods when growth in India has been high, there have also been much weaker periods, so overall average growth in India has been less consistent than in China.
Indian Economy Booms - Since 2003
Since 2003 the Indian economy has performed strongly. In 2005 real GDP growth was 8.2%, and it is expected that the outcome for 2006 will exceed this rate of growth. Nevertheless, this strong result is lower than the rate of economic growth that has been achieved by China, with annual real GDP growth hitting 10% in each of the last three years. Total GDP for India in 2005 was US$ 0.8 trillion, compared to US$ 2.2 trillion for China.
Exchange Rate Stabilises, Inflation Drops
The Indian rupee exchange rate for many years deteriorated against the world’s major currencies, with price inflation running at relatively high levels, typically 9% to 10% per year. For example, in 1980 the rupee was worth 12.2 US cents, but by 2002 its value had dropped to 2.06 US cents. Since 2002 the rupee has recovered a little, regaining some ground against the US dollar (current value 2.25 US cents). Inflation in recent years has been lower than in the 1990s, though the annual rate moved up to 6% in 2006.
High Growth in Fixed Investment
Indian growth rates in fixed investment have also been high, above 10% per year in real terms since 2003. But this growth rate is modest compared to the annual growth in fixed investment (above 20% in each year) that was achieved in China. The comparison in terms of the growth in industrial production diverges even more widely, with China’s growth rate above 14% in each year, compared to 7% to 8% for India. Clearly expansion of industrial output in India will have to accelerate dramatically before it begins to match the extraordinary growth that has been generated in China.
Robust Growth Forecast
Forecasts indicate that India’s economic growth is expected to continue, with real GDP growth running at approximately 8% per year over the next few years. Similarly high growth is forecast for industrial production and fixed investment in India. However, this level of GDP growth for India is lower than that forecast for China (approximately 9% per year), though the growth in fixed investment in China is expected to moderate from recent very high levels. If India is successful in attracting more foreign investment, then we might see even higher growth in fixed investment. Since much of this investment would involve building new facilities and infrastructure, the outlook for the cable market is positive, so long as the confidence of investors is maintained.
Population Growing Faster Than China
India’s population in 2005 was 1.1 billion, not far behind the total of 1.3 billion for China. While China’s population has been growing only slowly, with 0.7% average annual growth over the period 1995 to 2005, as a result of the Chinese government’s policies to restrict the size of families, India’s population has grown by an average of 1.7% per year over the same period. One obvious consequence of this high population growth is that a significant part of the growth in Indian GDP from year to year is absorbed by the population rise, rather than contributing to an increase in real GDP per head. On current growth trends, the population of India is likely to overtake that of China within the next 15 years.