India is one of the fastest growing economies in the world but up until recently there was no question in the minds of most economists and economic pundits that it would long play second fiddle to China. That belief is now being stood on its head. There is growing body of opinion that believes that growth in India will overtake that of China, not in the medium- to long-term but next year. The World Bank now predicts India’s Gross Domestic Product (GDP) will grow 8 percent, compared to 7.7 percent in China in 2010.
The reality, of course, is that China’s economy will still be three and a half time larger than India’s; last year Chinese GDP was worth $4.2 trillion compared to India’s $1.2 trillion. In fact that is part of the explanation. India starts from a lower base. If both countries add an extra $1 billion to GDP, the growth in percentage terms will be higher for India than for China.
But there is more to this than playing with statistics. There is no doubt that India’s economy has taken a drubbing with the recession. Indian shares tumbled, as did property prices. Exports in August 2009 were worth $14.3 billion, 19.2 percent down in dollar terms from the $17.7 billion for the same month in 2008 (although in rupee terms, down just half of that, 9.2 percent; amazing what can done with statistics!).
But it is nothing like the drubbing suffered by China. That is because China is a wholly export-oriented economy; exports have driven its spectacular growth. They account for a third of its GDP. When foreign markets cut back in the recession, it hits hard. Exports plummeted, factories closed, an estimated 40 million Chinese lost their jobs.
India’s economy is on more solid foundations — and that is why it is thought it will now fare better in the current economic climate. Indian exports are, as a percentage of GDP, about half what China’s are — around 14.5 percent compared to 33.1 percent. Indian production is much more geared to the domestic market. At the end of the day, markets are what matters. A company, a country, can produce as much as it likes but if it cannot sell it is in trouble. The Indian domestic consumer market is much larger, with more disposable income, than the Chinese one and much hungrier for goods.
So what does this mean for businesses here in the Middle East and in Saudi Arabia in particular?
As a result of the 2006 visit to India by Custodian of the Two Holy Mosques King Abdullah, economic ties at state level have strengthened. But Saudi businessmen, dazzled with China’s growth, saw only it and largely ignored India. With the recession they are now wary of investing there — and still they ignore India. They should think again. They should pay much more attention to the opportunities in India — as well as the potential from having so many Indians working in the Kingdom. They understand Saudi Arabia, its needs and the way it works almost as well as any Saudis. They are the chain links in what is in reality, though no one ever says it, a special relationship. With India’s star bright in the economic firmament, it would be folly to ignore it.
