Reversal of fortune! India’s per capita income to grow 3.5% faster than China: Brookings Institution

Reversal of fortune! India’s per capita income to grow 3.5% faster than China: Brookings Institution

According to an analysis published by the Brookings Institution, India’s per-capita income is anticipated to grow at an average rate 3.5 percent faster than China’s. This growth is attributed to substantial investments in labor, human capital, and structural reforms that have been undertaken in India since 2014.

As a result, there is a significant shift in economic momentum towards India, with the country expected to take the lead in the global growth story. In contrast, China is anticipated to slow down, potentially becoming a drag on global economic growth. The analysis suggests that India’s faster growth is likely to persist for the next two decades, gradually narrowing the gap in per-capita incomes between these two countries. This trend signals a reversal of fortune in the economic landscape, favoring India as a prominent player in global economic growth.

The recent analysis released by the Brookings Institution compares the per-capita income of India and China. The report highlights several factors that contribute to India’s economic momentum, including substantial investments in labor and human capital, with a specific emphasis on Science, Technology, Engineering, and Mathematics (STEM) fields. Additionally, India has undertaken significant upgrades in its physical capital, and this, coupled with higher productivity, has been instrumental in driving economic growth.

The analysis also provides a comparative insight into total factor productivity (TFP) between the two nations. Over the last two decades, India’s TFP has consistently exceeded that of China by 0.5 percent per annum. In the most recent decade, India’s TFP growth has outpaced China’s by an even greater margin, standing at 1.5 percent per annum. These factors collectively contribute to India’s favorable economic trajectory and per-capita income growth in comparison to China.

The analysis conducted by the Brookings Institution provides significant insights into the future trajectory of India’s per-capita income compared to that of China. The findings suggest that India’s per-capita incomes are poised to grow at a notably faster rate, with a conservative estimate indicating a 3.5 percent differential advantage over China. This differential in growth rates can be attributed to several key factors.

Firstly, India has been making substantial investments in labor and human capital, particularly in STEM (Science, Technology, Engineering, and Mathematics) fields. These investments have the potential to enhance the productivity of the workforce, which in turn can contribute to higher per-capita income.

Secondly, India has embarked on massive infrastructure development and the upgrading of physical capital. This includes improvements in transportation, energy, and technology infrastructure, all of which are crucial for economic growth. Improved physical capital can boost productivity, facilitate trade, and attract investments, all of which are favorable for income growth.

One of the critical insights from the analysis is the comparison of Total Factor Productivity (TFP) growth between India and China. Over the past two decades, India has consistently surpassed China in TFP growth by 0.5 percent per annum. In the last decade, this growth gap has widened to 1.5 percent per annum. This indicates that India has been increasingly efficient in utilizing its resources, which is a key driver of economic growth and, consequently, per-capita income.

Now, in terms of the timeline for India to catch up with China’s per-capita income, the analysis suggests that based on different growth projections, India may take anywhere between 19 to 22 years from 2023 to achieve parity. This means that by 2042 or 2045, India could potentially have a per-capita income level similar to that of China, assuming these growth trends persist.

The Brookings Institution’s analysis underscores the significant impact of structural reforms initiated by India since 2014 on the country’s growth trajectory. These reforms have played a pivotal role in driving India’s economic progress and have resulted in its per-capita income growing at a rate faster than that of China for the first time since the 1960s.

One of the key revelations of this analysis is the comparison of per-capita GDP growth between India and China during the decade from 2010 to 2019. During this period, India achieved higher per-capita GDP growth rates than China, marking the first time such an occurrence has happened since the 1960s. This milestone signifies a notable shift in the economic dynamics of the two countries.

Specifically, between 2010 and 2019, India’s purchasing power parity (PPP) per capita income registered an impressive growth rate of 5.2 percent, outpacing China’s growth rate of 4.5 percent. Purchasing power parity accounts for differences in price levels between countries, providing a more accurate measure of real income and living standards. India’s ability to surpass China in this metric is indicative of its improving economic conditions and the positive impact of its policy reforms.

The decade from 2010 to 2019 was marked by several notable reforms and initiatives in India, including the implementation of the Goods and Services Tax (GST), the “Make in India” campaign to promote manufacturing, efforts to improve the ease of doing business, and the push for digitalization and financial inclusion through initiatives like “Digital India” and Jan Dhan Yojana.

These structural reforms have contributed to improving India’s business environment, enhancing economic efficiency, and fostering growth in various sectors. Additionally, investments in infrastructure, education, and healthcare have bolstered human capital and productivity, further supporting the country’s economic expansion.

In conclusion, the Brookings Institution’s analysis underscores the significance of the structural reforms undertaken by India since 2014 in driving its economic growth. The data revealing India’s per-capita income surpassing that of China for the first time in decades highlights the positive impact of these reforms on India’s economic momentum and reinforces its position as a key player in the global economic landscape.