The Third Economy~II

A comparison of the two sets of figures published yesterday reveals interesting features. While the USA is ahead of China in Nominal GDP, in terms of PPP, China has already outstripped the USA by a comfortable margin to become the number one economy of the world. India with a GDP (PPP) of $17.65 trillion is the clear third largest economy. Russia is a formidable military and economic power but does not figure within 10 largest economies in nominal terms while in PPP terms, Russia Becomes the fourth largest ahead of Germany, Japan, France and United Kingdom.

Another interesting aspect of this analysis is that Indonesia as an emerging power occupies the 7th place outstripping the developed economies of Italy and Canada. Does India’s high GDP ranking in PPP terms make it a developed country? The answer will depend on how we define ‘development’. A country may have been very developed and rich in art, culture, science and heritage but poor in wealth. This is what has happened to India and China, the only two continuing ancient civilizations. According to British economic historian Angus Maddison, back in 1820 (two centuries ago), India and China accounted for nearly 50 percent of global GDP ~ 23 percent India and 27 percent China.

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India and China had been the most developed countries not only in ancient cultural heritage but also in economic terms contributing to 50per cent of world trade till the early 1800s. But both ancient civilizations became poor in wealth owing to colonization and ruthless exploitation. In today’s world, it is the economic power ~ national income (GDP) and per capita income(quality of life)determine whether a country is developed or not. The following table will show the relative position of the five major economies in terms of quality of life. Country Per Capita GDP (Nominal) Per capita GDP (PPP) Rank (Nominal) Rank (PPP).

It is obvious from that India is nowhere near the other four major economies in terms of per capita income, both Nominal and PPP, as India ranks 136 and 119 respectively among 195 nations. But this does not make India a poor country as a whole because of her formidable population of 1.42 billion and a GDP of 4.19trillion dollars (Nominal) and 17.65 trillion dollars(PPP) and still growing with a burgeoning middle class and a high rate of growth. India’s growth is basically consumption based while China’s growth is manufacturing based. According to many experts, India’s real GDP and per capita income should show a higher figure if all the services in the unorganized sectors were correctly accounted for. It is doubtful if all the incomes of the vast unorganized sector-e.g. domestic services, cooks, maids, helpers, homemakers etc. are accounted for as well as the black economy estimated to be between 20-25 percent of India’s economy.

One of the leading legal luminaries of India (Ram Jethmalani) said, “India is a rich country but made poor because of siphoning of trillions of dollars stashed in tax havens and foreign lands.” According to Forbes’ published list of billionaires, India has 205 billionaires ranking third behind the United States (902) and China (450). It is observed that the growth of billionaires follows the same pattern of economic growth although ironically, it has a tendency to widen the economic disparity gap and worsens the Gini Index. Surprisingly, the Ginico efficient for India (30.7- low/ medium) is better than that of USA (46.5 -high) and also that of Japan (33.8- medium) and China (35.7 -medium). This clearly shows that India has a more equal society than those of the United States, Japan and China; only Germany among these five nations has a low Gini coefficient.

The actual number of Indian billionaires is believed to be much more ifall the unaccounted and concealed income at home and abroad is taken into account.India climbs to the 4th global spot in high net-worth population next to the United States, Japan and China with a total of 86,000 individuals possessing wealth exceeding $10 million (Rs 850,000,000). Low per capita income of the Indians and poor ranking (136) need not be considered as matters of great concernand are not to be bemoaned. On the other hand, it provides a great opportunity for foreign investment in India. All the big trans-national and multinational conglomerates have been following for a long time an offshoring policy of “race to the bottom” ~ establishing production centres in countries having the lowest labour costs. This led the multinationals to shift their production units to China and then to Vietnam, Thailand, Indonesia and Bangladesh. Since India stands now in an advantageous position visa-vis China. With her huge pool of human resources and technology, India has the potential to become an important manufacturing hub and an essential link in the supply chain of the world.

(The writer is a former Dy. Comptroller &Auditor General of India and a former Ombudsman of Reserve Bank of India. He is also a writer of several books and can be reached at brahmas@gmail.com)