India is far from replacing China as the world economy’s main growth engine anytime soon, despite its impressive recent economic gains, HSBC Holdings Plc. said in a report.
Findings
Economists Frederic Neumann and Justin Feng wrote in the report on Friday that “The numbers don’t exactly add up.” At the moment, India “runs on too few cylinders,” they wrote, adding that meanwhile, China is “simply too large to have its importance for the world economy readily eclipsed.”
The financial services group further forecasted that this gap between the two economic powers will continue to widen in the foreseeable future. According to the IMF, this gap will expand to $17.5 trillion by 2028, which is equal to the current size of the EU’s economy.
Last year, the gap between the two economies stood at $15 trillion.
It added that even by assuming that China witnesses zero growth, while investment spending growth in India triples from its recent average, it would take India another 18 years to match China’s growth.
Presently, China accounts for around 30% of world investment, in contrast to India’s share, which is less than 5%. Moreover, New Delhi’s share in global consumption also falls under 4%, compared to Beijing’s 14%.
“Even assuming zero growth in China, and a tripling of investment spending growth in India from its recent average, it would take another 18 years before India’s investment spending catches up to China’s, the economists wrote.” 1/3 https://t.co/Xy9PD3dP6k
— Gokul Sahni (@Gokul_Sahni) October 13, 2023
Despite this outlook, the HSBC economists expect India to make a significant contribution to the global demand for commodities, consumption, and capital goods, making them “bullish on India.”
India will likely become a “far bigger player in global trade, possibly attaining a similar, key role in services exports as China occupies in goods supply chains today,” they said.
Other Forecasts
The latest report’s findings are in stark contrast to forecasts by other banks.
For example, Barclays Plc. said earlier this week that India will witness a steady 8% expansion, which will allow it to replace China as a global growth driver in the next five years.
According to the IMF forecast, India’s economy will grow at 6.3% each in 2023 and 2024, while China’s economy should grow at 5% and 4.2%, respectively, in that same period.