The Economist Guide to Emerging Markets by Aidan Manktelow

Author:Aidan Manktelow
Language: eng
Format: epub
Publisher: PublicAffairs

TABLE 2.1 China: economic indicators

a Real GDP (gross domestic product) is adjusted for price changes. Nominal GDP includes price effects.

b GDP per head (US$ at PPP; purchasing power parity) is calculated based on an adjustment of exchange rates to reflect differences in the cost of goods and services between countries.

Source: The Economist Intelligence Unit

INDIA

Historical snapshot

British rule in India came to an end in 1947, and Jawaharlal Nehru’s government set up a complex system of socialist economic controls that remained largely in place until the 1980s. As a result, the country’s economic performance was weak, struggling to grow above 4% annually, despite a rapidly increasing population. It was not until 1991, when India experienced a balance-of-payments crisis, that significant reforms were introduced and the country opened up to international trade and investment. Today, India maintains many vestiges of its socialist, closed-off, bureaucratic past. However, the reforms unveiled in 1991 provided enough freedom for economic growth to rise sharply.

Market dynamics

India is a parliamentary federal democracy – by far the world’s largest – with an independent judiciary. But while the electoral process runs smoothly, politics is anything but harmonious. Two main parties dominate national-level politics, the Indian National Congress (set up by Nehru) and the Bharatiya Janata Party (BJP). In recent years, neither has managed to gain a majority, and as the power of smaller regional and caste-based parties has risen, so coalitions have become more unwieldy. Coalition politics is likely to continue.

Under such circumstances, successive governments have found it increasingly hard to get things done. India desperately needs economic liberalisation. Because of the lack of progress, growth has slowed, from 10.5% in 2010/11 (India’s reporting year begins on April 1st) to 3.3% in 2012/13. Growth is expected to return to around 6% from 2013/14, but an economy at India’s early development stage should be growing much faster.

India remains a relatively poor country. Per-head GDP in 2012 stood at around $1,500, less than one-third of China’s level. The vast majority of the population, around 70%, still lives in the countryside. Some 60% of the population is employed in farming, yet agriculture makes up only 17% of the economy. India’s cities are the engines of economic growth, and a middle class is emerging that is large in absolute numbers, even if it remains a small fraction of the overall population. The number of people in India’s cities is rising sharply, although the government estimates that urbanisation will reach only 36% in 2025, compared with 30% in 2012 (partly because of higher birth rates in rural areas).

With almost one in five of the world’s people, a young and rapidly expanding population, and medium-term growth likely to average around 6–7% a year, interest from foreign companies is strong. Many businesses have done exceedingly well, such as Unilever, an Anglo-Dutch consumer goods company, and LG, a South Korean electronics manufacturer.

Companies focus initially on the tier 1 cities, such as Delhi and the surrounding National Capital Region, Mumbai, Bangalore, Hyderabad and Chennai. These are home to India’s burgeoning middle class.

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