Harvard Study Places India On Top

The Indian economy was left in a shambles by the UPA government in May 2014. GDP growth had fallen to 4.5 per cent. Jobs were scarce. Industry was stagnant, manufacturing weak.

The Narendra Modi government has swept some of these economic debris away. But much remains to be done. Economic reforms have come in baby steps. One minister justified this recently by saying incremental reforms when added up amount to big bang reforms.

Not quite. In a recent column for BusinessWorld, I suggested how, for example, sweeping tax reform could reignite the economy, drive consumption and revive investment. Recent numbers on industrial growth and corporate earnings make for grim reading. The stock market and the rupee have plunged. The slowdown in China is having a domino effect.

Not everyone is pessimistic though. A decade-long study by Harvard University's Centre for International Development, published last month, has concluded that India will be the world's fastest-growing economy over the next ten years.

The Harvard researchers predict that Indian GDP will expand at an average of 6.98 per cent till 2025. This means nominal GDP will nearly double to around $4.50 trillion in 2025 at current exchange rates.

By purchasing power parity, a norm the International Monetary Fund (IMF) and World Bank (WB) routinely use, Indian GDP is already $7.40 trillion. Employing Harvard's calculations, India's GDP (PPP) in 2025 will thus be around $15 trillion.

This is what the Harvard study says: "India has the potential to be the fastest growing economy over the coming decade, according to new growth projections presented by researchers at the Center for International Development at Harvard University (CID). The researchers use their newly updated measure of economic complexity, which captures the diversity and sophistication of productive capabilities embedded in a country's exports, to generate the growth projections. The projections reflect the latest 2014 trade data available. The global landscape for economic growth shows greatest potential for rapid growth in South Asia and East Africa. Conversely, oil economies and other commodity-driven economies face the slowest growth outlook. India tops the global list for predicted annual growth rate for the coming decade at 7 per cent. This far outpaces projections for its northern neighbor and economic rival, China, which the researchers expect to face a continued slowdown to 4.3 percent growth annually to 2024."

Interestingly, western Europe's fastest-growing economy will be Britain (3.22 per cent) - a testament to Chancellor of the Exchequer George Osborne's prudent economic management since 2010. Osborne is being spoken of as the next British prime minister when the UK general election is held in 2020. David Cameron has pledged to step down as prime minister after completing his second term.

Another interesting projection in the Harvard study is Pakistan's growth of 5.07 per cent. India's economy is currently nine times Pakistan's. If the Harvard study's projections hold good (an approximately 2 per cent annual growth differential between the countries), the India-Pakistan GDP gap will widen to nearly 12 times by 2025.

In this lies clues to how the Pakistani economy's dependence on Indian trade and energy under SAARC's umbrella could be the long-term antidote to Islamabad's state policy of proxy terrorism. Just as talks and terror don't go together, trade and terror don't go together either.

If the Harvard study is right, India's GDP (PPP) in 2025 at $15 trillion will be the world's third largest after China and the United States. Pakistan's GDP (PPP) in 2025 will be $1.25 trillion, one-twelfth India's.

It is at this inflection point that trade trumps terror. Akhand Bharat may be a dotty idea: it is. But an economically Akhand South Asia could be in everyone's interest. It would certainly put Hafiz Saeed, Masood Azhar and other jihadis out of business well before 2025.