Financial Services Group Citi’s Report on Global Growth Generators

According to report by financial services group Citi on Global Growth Generators released in February 2011, India is likely to become the world’s largest economy worth $85.97 trillion by 2050 surpassing China and the USA. The estimates provided in the report are based on purchasing power parity (PPP). PPP is an economic growth indicator that takes into account the purchasing power of each country’s currency, instead of the prevailing exchange rate conversion.

According to the report, India’s real per capita GDP is expected to grow at 6.4 per cent annually over the 40-year period between 2010 and 2050. By 2015, India is likely to overtake Japan to be the third largest economy in the world and it would surpass the US to become the second largest by 2040. As per the report, the Indian economy will shine owing to its huge demographic dividend, high savings rate and education system. India’s population of working age is expected to grow by 40.7 percent between 2010 and 2050.

The report in its analysis noted that the Indian education system produces a large pool of cheap, internationally competitive, English-speaking graduates, allowing India to build up a comparative advantage in certain sectors, such as IT or business processes.

The report however warned that for India to actually realise this forecast it will have to ensure that the working population is educated and trained. The report also stressed on the need to improve the country’s infrastructure, attitude to foreign direct investments as well as overhaul its education system. The report emphasised on the need for deregulation of the domestic economy and further trade liberalisation. The report considered pricing water, energy and other resources at full marginal social long-run cost, at least for all producers to be essential.

Though India may top in terms of GDP by 2050, the growth may not be very inclusive as it does not find a place in the top countries on the basis of GDP per capita. India ranked 54th in real per capita GDP at $3298 in 2010.

In the report Citi pointed out that North America and Western Europe’s share of world’s real GDP (in terms of USD calculated on PPP basis) is expected to fall from 41 per cent in 2010 to just 18 per cent in 2050.