India as #1: Even sooner than I thought
Last year the professors at George Mason asked me for my most outrageous belief. Initially I couldn’t think of one; I thought my views on the Fed were sufficiently outrageous. (Of course that’s before Fed officials themselves started calling current policy “restrictive.”) I finally ended up with a post predicting that India would have the largest economy in the world 100 years from now. Unfortunately, events are moving so fast that this prediction no longer seems outrageous enough, and I plan to move the date much closer to the present. But first I’d like to provide a few reasons for why I think my previous view was far too un-outrageous.
One problem was that I was merely looking at population data, not size of workforce. Here’s some interesting info from The Economist:
India’s GDP is expected to grow by 8.5% this year, and could grow even faster. Chetan Ahya and Tanvee Gupta of Morgan Stanley, an investment bank, predict that India’s growth will start to outpace China’s within three to five years. China will rumble along at 8% rather than double digits; India will rack up successive years of 9-10%. For the next 20-25 years, India will grow faster than any other large country, they expect. Other long-range forecasters paint a similar picture.
Let’s assume that by 2050 India has 1.5 billion people and China has 1.3 billion (I think these are fairly close to the consensus.) Then because a much larger share of India’s population will be of working age, it will have 25% more potential workers (1 billion vs. 800 million.)
Furthermore, I read somewhere else that China’s population may fall to 750 million in 100 years. This is due to the fact that China is rapidly becoming richer, and birthrates in all other rich East Asian countries are barely more than one child per family. I see no reason why China will be different.
Let’s assume India’s population levels off at 1.5 billion (or more likely grows a bit after 2050, and then later shrinks a bit.) That means it will have twice China’s population in 100 years. Furthermore, China’s demographics will look much more like an inverted pyramid, meaning that China might only have 40% of India’s working age population, not the 80% predicted for 2050. India will probably be a developed economy by 2110, and almost all developed economies have relative similar per capita GDPs. I can’t imagine India’s productivity still being only 40% of China’s at that time. As The Economist indicated, India will soon be growing faster than China, and when China hits the middle income wall that Korea and Taiwan hit in the 1990s, its growth will slow sharply.
I apologize for the previous prediction that it would take India 100 years to catch up to China, I was assuming much more similar workforces. So if I am going to continue calling this prediction “outrageous, I need to at least keep a step ahead of the ultra-respectable Economist magazine. So here’s the new prediction:
Year: 2081
Workforce ratio: China will have 60% of India’s workforce.
Productivity ratio: India will have 60% of China’s worker productivity.
GDP ratio: 1:1
Fortunately, I won’t be alive then to be mocked for my prediction. Poor Lester Thurow and Robert Fogel may not avoid that ignominious fate. Ultra-pessimistic Thurow says it will take China at least 100 years to catch up to the US in GDP (actually they are just 5 to 7 years away in PPP terms.) And ultra-optimistic Fogel says China will have twice the EU’s per capita GDP by 2040. Twice!?!? Fogel’s a great economist, but I wouldn’t say that forecasting GDP is his strong suit.
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10. October 2010 at 05:45
Lester Thurow is over-compensating for being so badly wrong about Japan in the 1980s — how it was doing everything that matter right and doing it so much better than the US.
10. October 2010 at 05:47
Of course, if India does overtake China: then it will be the triumph of the English speakers. The British century (the C19th), followed by the American century+ (the C20th+) followed by the Indian century …
10. October 2010 at 06:33
Lorenzo, Good point about Thurow. I think of this as the Chinese century, as they’ll be number one from 2017 to 2081. The 22nd will be the Indian century.
10. October 2010 at 07:42
As I pointed out in Scott’s original post on India as number one, according to Angus Maddison’s historical GDP data, India led the world in GDP before 1500 and China led more or less uninteruptedly from 1500 until about 1911 when the US took the lead. The 20th century, with countries like the US, the USSR, Japan, Germany, France and the UK at times leading China and India, was an abberation.
10. October 2010 at 08:31
Some people like to pooh-pooh India’s growth. But not Razib Khan.
10. October 2010 at 08:35
mark, I agree.
TGGP, That’s a good post.
10. October 2010 at 11:28
[…] Scott Sumner is also thinking along similar lines. Last year the professors at George Mason asked me for my most outrageous belief. Initially I couldn’t think of one; I thought my views on the Fed were sufficiently outrageous. (Of course that’s before Fed officials themselves started calling current policy “restrictive.”) I finally ended up with a post predicting that India would have the largest economy in the world 100 years from now. Unfortunately, events are moving so fast that this prediction no longer seems outrageous enough, and I plan to move the date much closer to the present. […]
10. October 2010 at 15:46
‘…then it will be the triumph of the English speakers.’
Brush Up Your Shakespeare, if you want to get rich.
10. October 2010 at 15:54
Interesting insight on India–I wonder if Indian culture and heavy-handed government regs and corruption will prevent India from growing all that quickly.
10. October 2010 at 20:26
The one child policy may prove very costly for China in the end. (Julian Simon coulda told them.)
China led [world GDP] more or less uninteruptedly from 1500 until about 1911
It’s interesting to speculate where the Chinese economy would be today if the Communists hadn’t set it back by several decades. This might have been their century already.
10. October 2010 at 21:08
You surely *assume* that the current population projections for India would continue into the future too?
You also seem to think that the article which mentioned that China might reduce its population in a while due to it becoming a high-income country somewhere down the line and realising that it should produce a lot more of kids in the near future and reduce it slowly.
I feel that India will do the same thing somewhere down the line and its population projection will come down considerably too. All this points to a little drag on the downside.
But, I like the point that somewhere down the line India might stand up and be counted. Most probably it will come sometime sooner than 2081.
10. October 2010 at 21:09
lot fewer kids, I wanted to mean.
10. October 2010 at 23:27
The big unknown in all of this is the actions and fate of a nuclear armed Pakistan.
Many Indians consider the country to be an aberration in the context of Indian history and a product of a last gasp of British imperialism.
If Pakistan quietly breaks up into its constituent parts, will it get absorbed into a superstate that might require India to finally reform its political structure?
If not, can either country afford to go to war?
Either way, the status quo is unsustainable no matter what the State Department would like you to think.
11. October 2010 at 05:34
Benjamin, I’d expect the reforms to continue over time, at a gradual rate.
Jim Glass, If they’d done the market reforms in 1949 instead of 1979, they’d be a developed economy by now.
Vijay, No, I am assuming India’s birth rate will fall over time, otherwise the population projection would have been much higher for India.
Sid, I have no idea what the State Department wants me to think, and I don’t think other Americans pay any attention to what the State dept. thinks.
I don’t know enough about Pakistan to have an intelligent opinion on the subject.
12. October 2010 at 04:36
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