As China's economy matures and its growth rate slows, can India continue to perform and become another growth engine of the global economy? AllianceBernstein believes that there are many opportunities in the long run, but there are still many business cycle factors that must be considered in the short term. Since Narendra Modi took office as prime minister in 2014, India's economic fundamentals have improved markedly, leading many to believe it can offset a slowdown in China's economy. As China's economy matures and its growth rate slows, can India continue to become another growth engine of the global economy? Considering the long-term economic development of India, there is indeed a lot of opportunities. The many favorable factors include: a large population, and the majority of young people, a huge domestic demand market, a serious shortage of infrastructure investment, and the competitiveness of service exports and some manufacturing industries in Asia.
All positive developments will help India win. If Modi succeeds in harnessing this enormous potential momentum and enhancing government efficiency (such as improving policy implementation, reducing fiscal deficits and foreign debt), economic growth rates could rival China's peak. India's current per capita GDP is less than US$1,700. If the annual growth rate is 10% to 12%, it will greatly stimulate trade, promote industrialization and urbanization, and reproduce the prosperity of China 10 or 20 years ago. All countries in the world will benefit from this. But it is worth noting that although India's long-term potential is promising, its short-term prosperity is number list lackluster. The current economic growth of China and India is not strong enough to boost the global economy in the coming year. The overall economic growth rate of the two countries is in the range of 6.5% to 7.0%, which is still higher than that of many countries. However, if we further observe the growth momentum and policy direction of the two countries, we can see the hidden worries, especially from the perspective of the business cycle. It's hard to be optimistic.
The three major challenges facing the future of both countries will be described below. Economic growth lacks support from private enterprises The main force of recent growth in China and India has come from public spending, while private investment remains sluggish. The difference between the two countries is that China is striving to adjust its economic structure, trying to get out of the investment-oriented growth model and transform into a consumption-oriented economy; India, on the other hand, hopes to strengthen government investment and reduce its investment in the service industry and low-additional economy. Dependence on value consumption. India's overall GDP grew at an annual rate of 7.9% in the first quarter, which fell to 7.1% in the second quarter, but excluding government spending, growth was even lower at 5.7%. Overall capex fell by about 3% (Figures 1 and 2). India's economic growth depends entirely on government spending Picture_2 Figure 2: Public spending increases, but capital spending plummets Market focus has now turned to India's fourth-quarter performance.