MUMBAI: India is likely to emerge as the world's third-largest economy by 2030 and grow faster, on an average, than China over the next two decades, says the Standard Chartered report India in the Super Cycle. However, regulatory burden, infrastructure bottlenecks, high oil prices and slowdown in foreign direct investment could affect growth.
"We factor in a trend rate of growth of 6.9% for China, allowing for setbacks along the way, and 9.3% for India, again taking into account the business cycle," said Gerard Lyons, chief economist and group head, global research, Standard Chartered Bank.
The world may be experiencing its third 'super-cycle', which is defined as "a period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanisation and technological innovation, characterised by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world," Standard Chartered said.
The third supercycle, the report says, is led by India and China and other emerging economies, shifting the balance of economic and financial power from the West to the East. The winners of the supercycle would be those countries which have abundance of cash or commodities. Currently, the Indian economy is expected to grow at about 9%, however, the rising inflation poses a risk to growth. In 2010-11, the central bank has raised key policy rates eight times.
The wholesale price based inflation was at 8.66% in April, compared with 9.04% in March. "India's growth is particularly vulnerable if infrastructure investment is not rapid enough. India needs to attract foreign capital to fill the funding gap," the report said. Net FDI inflows as a proportion of net FII inflows averaged around 40% between 2003 and 2007, but this dropped to just 28% in 2010. "The government's inability to push ahead with the relaxation of FDI caps in sectors such as multibrand retail and insurance has also dampened FDI inflows.
Further, opening of the corporate bond market would also be needed," said the report. "Indian bureaucracy and the corruption that often accompanies it need to be overhauled to make decision making more efficient," it added. The rising oil prices could also be a potential risk to growth. "The regulatory environment in India has been inherited from the British. There needs to be right regulations and investment opportunities for investors," added Mr Lyons.
"The regulators need to broaden regulation and make regulatory framework conducive for foreign investors and foreign banks to participate in the local market," he added. However, he is of the view that international banks need to avoid subsidarisation as it can work against international banks. "Banks that facilitate international trade need to operate as a single unit. International Banks need to operate as one entity so that they can move capital freely," said Mr Lyons.
"We factor in a trend rate of growth of 6.9% for China, allowing for setbacks along the way, and 9.3% for India, again taking into account the business cycle," said Gerard Lyons, chief economist and group head, global research, Standard Chartered Bank.
The world may be experiencing its third 'super-cycle', which is defined as "a period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanisation and technological innovation, characterised by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world," Standard Chartered said.
The third supercycle, the report says, is led by India and China and other emerging economies, shifting the balance of economic and financial power from the West to the East. The winners of the supercycle would be those countries which have abundance of cash or commodities. Currently, the Indian economy is expected to grow at about 9%, however, the rising inflation poses a risk to growth. In 2010-11, the central bank has raised key policy rates eight times.
The wholesale price based inflation was at 8.66% in April, compared with 9.04% in March. "India's growth is particularly vulnerable if infrastructure investment is not rapid enough. India needs to attract foreign capital to fill the funding gap," the report said. Net FDI inflows as a proportion of net FII inflows averaged around 40% between 2003 and 2007, but this dropped to just 28% in 2010. "The government's inability to push ahead with the relaxation of FDI caps in sectors such as multibrand retail and insurance has also dampened FDI inflows.
Further, opening of the corporate bond market would also be needed," said the report. "Indian bureaucracy and the corruption that often accompanies it need to be overhauled to make decision making more efficient," it added. The rising oil prices could also be a potential risk to growth. "The regulatory environment in India has been inherited from the British. There needs to be right regulations and investment opportunities for investors," added Mr Lyons.
"The regulators need to broaden regulation and make regulatory framework conducive for foreign investors and foreign banks to participate in the local market," he added. However, he is of the view that international banks need to avoid subsidarisation as it can work against international banks. "Banks that facilitate international trade need to operate as a single unit. International Banks need to operate as one entity so that they can move capital freely," said Mr Lyons.
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