China’s economy will surely catch up with the US but eventually India...

China’s economy will surely catch up with the US but eventually India will surpass both


China’s economy will surely catch up with the US but eventually India will surpass both

A view of Shanghai, China’s major financial hub and destination for foreign investment

The five largest economies in the world for 2021- 2022, as measured by nominal GDP in US dollars term were the U.S., China, Japan, Germany, and the United Kingdom. The top 5 countries made up over half of the world’s economic output by gross domestic product (GDP) in nominal terms. In fact, the GDP of the United States alone is greater than the combined GDP of 170 countries.

The United States has been the world’s largest economy since 1871. The nominal GDP for the United States is $24.79 trillion in 2022. China is the second-largest economy considering nominal GDP, at $18.46 trillion. Japan has the third-largest economy in the world with a GDP of $5.38 trillion. The German economy is the fourth-largest in the world with a GDP of $4.5 trillion. The United Kingdom’s economy is the fifth-largest in the world with a GDP of $3.44 trillion. India, which has a $3.25 trillion GDP, is the sixth-largest economy in the world.

The World’s GDP is $95 trillion as of 2022, Gross Domestic Product (GDP) serves as a broad indicator of a country’s economic output. GDP is the monetary market value of all final goods and services made within a country during a specific period. The world GDP is the added total of the gross national income for every country in the world. Generally speaking, when GDP is increasing in a country, it is a sign of greater economic activity that benefits workers and businesses (while the reverse is true for a decline). GDP is in billions of US dollars.

Till around six hundred years back it was India which had been at the top of the Chart with more than 25 % òf World’s GDP. China was number two and the USA was not even born. The circle is now turning again. India has already overtaken UK to become the fifth largest economy in USA dollar terms. Experts had predicted that India will become the fourth largest only in end 2026. However it seems that India will be overtaking Germany as fourth largest economy by December 2023 only.

In fact in terms of Purchasing Power Parity which is the real indicator of any economy, India is already the third largest economy and not very far behind China. The USA dollar is just a paper currency which is has a very high artificially inflated value and does not present a true picture. No wonder experts predicting things for the future fail miserably, specially with respect to the Indian economy.

Last year, the increment of the nominal GDP of the US was slightly larger than China’s. However not only China’s GDP growth rate exceeded that of the US but also its actual increment was bigger than the US’ and this has been the case for quite some years. China’s GDP growth rate of 3 percent was higher than the US’ 2.1 percent last year, but the increment of the US’ GDP slightly surpassed China’s. In contrast India’s economic growth rate for 2022 was 8.7%. This is worth paying attention to.

It is believed at least by China itself that China’s GDP growth rate and actual increment will surpass the US’ this year, continuing the strong momentum of catching up with the US in terms of total economic size. This year, China’s GDP is expected to grow by around 5 percent, while the US is only expected to grow by 0.5 percent, indicating a huge gap. Moreover, the possibility of China’s growth exceeding expectations is bigger than that of the US, as around 5 percent is clearly a conservative figure. India on the other hand expects its growth to be at 7% at end of March 2023 and 6.5 % for year 2023-2024.

A significant source of China’s confidence is the consistently strong economic growth, which has led to a clear trend of narrowing the gap between China and the US in terms of GDP.

China’s development potential is in a stage of continuous growth, but slowly getting exhausted. Though it is expected that China’s total economic size will surpass that of the US in the next decade or so, as long as China focuses on developing itself well.

Though many experts predict that China will lose the hope of surpassing the US in total economic size due to its declining population and technology decoupling. China must avoid war with Taiwan and tensions with all its other neighbours. China must also resolve both the Indo Tibetan border issues and also all issues pertaining to China Tibet border.

On the other hand, India’s optimistic growth forecasts stem from a number of positives like the rebound of private consumption given a boost to production activity, higher Capital Expenditure (Capex), near-universal vaccination coverage enabling people to spend on contact-based services, such as restaurants, hotels, shopping malls, and cinemas, as well as the return of migrant workers to cities to work in construction sites leading to a significant decline in housing market inventory, the strengthening of the balance sheets of the Corporates, a well-capitalised public sector banks ready to increase the credit supply and the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector to name the major ones.

India’s growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors. Further support to economic growth will come from the expansion of public digital platforms and path-breaking measures such as PM GatiShakti, the National Logistics Policy, and the Production-Linked Incentive schemes to boost manufacturing output.

It is worth emphasizing that once China’s total economic size surpasses that of the US in about a decade, India will not be far behind, specially in PPP terms.

 However even when China becomes No1 and India No2,their per capita GDP will still be lower than the USA. Though it will still be a significant tipping point, and many things will change in ways we may not have imagined today. The world knows that it is an irreversible trend for China and India to be the world top economies in a decade again.

By 2047, India will not only be the World’s top economy but will also have the highest Per capita GDP.