Indian economist Ruchir Sharma has become a celebrity of sorts here as he predicted that the “era of BRICS is over” and that China is the only nation in the five-member bloc which has better prospects of breaking out of the middle income trap.
China is the only one of the emerging BRICS nations (Brazil,Russia,India,China and South Africa) that is likely to break out of the middle income trap,state-run China Daily,which devoted its entire page covering the launch of Chinese version of Sharma’s book ‘Breakout Nations: In Pursuit of the Next Economic Miracles’,quoted him as saying. Sharma who heads emerging markets and global macro at Morgan Stanley,however,says it will still be a difficult journey for the world’s second-largest economy. The middle income trap is an economic development situation where a country which attains a certain income due to given advantages gets stuck at that level.
“China has just got into the middle-income status so now is the big test as to whether it gets stuck or not. I think it is a fair assumption that it will get to the next level and if its economy grows at 5 to 6 per cent over the next 15 years,its per capita income is likely to more than double to around USD 20,000,making it firmly high income,” he says.
It is certainly music for the state media which is saddled with reports of China’s declining economy which posted 7.6 per cent growth rate in the second half with projections that the GDP may go down to 6 this year leaving the hey days of double-digit growth way behind. “I have been very lucky because the main thesis of the book was that this era of BRICS is over. It was the hot theme of the last decade. Every decade there is some theme that captures the imagination of everyone,” Sharma told the Daily.
“China is in a similar stage of development as to where Japan was in the 1970s,South Korea in the 1980s and Taiwan in the 1990s. They moved on to the next level but with a slower pace of growth from that point,” he said. Sharma says slowing growth for China should no longer be the frightening prospect it once seemed and may no longer result in higher unemployment and consequent social problems.
“I think China can achieve its economic dream with 5 to 6 per cent economic growth and I think that would be more sustainable than the 7 to 8 per cent which they (policymakers) want to officially achieve,” Sharma said. Sharma is also negative about India’s growth prospects as with a 2012 per capita income of USD 1,489,making it a low-middle income country,India will find it difficult to build on the growth it has seen over the last decade.
“I think a lot of people have prospered in India over the last decade but I don’t believe a country with an economic model where manufacturing does so poorly can do well. I think that is a major drag on its development,” he said. Sharma says many people make the mistake of comparing India and China as rivals when there are vast differences.
“It is not just about size,although China’s economy is three to four times bigger. The differences are much deeper. The Chinese model of strong central leadership would just not work in India since it is so diverse,almost like a continent,” he says.