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Finally,India beats China in growth

India's GDP grew 10.4% in ‘10,China 10.3%: IMF study

Written by P Raghavan | New Delhi |
April 13, 2011 1:23:28 am

It’s official! India’s growth in 2010 was a notch higher than that of China. According to data from the IMF,India’s GDP grew 10.4 per cent in 2010 versus China’s 10.3 per cent. And if projections by official agencies are anything to go by,China is looking at a 7 per cent growth in the Twelfth Plan period (2011-15) compared with India’s 9 per cent. This is the first time that India’s growth has overtaken that of China,since the latter initiated reforms in the 1980s,a decade ahead of India.

The other fast-growing major developing economies in 2010 included Brazil (7.5 per cent),Mexico (5.5 per cent) and Russia (4 per cent). Among developed countries the fastest growing major economies in 2010 were Japan (3.9 per cent),Germany (3.5 per cent),Canada (3.1 per cent) and United States (2.8 per cent). Growth was much slower in countries like France (1.5 per cent) and Italy (1.3 per cent).

At 10.4 per cent,the growth numbers for India are higher than the official data. The reason for this is provided in the method used by the IMF to arrive at its numbers.

The IMF estimates growth rates by converting the GDP of countries in local currencies to $ at market exchange. So,if a currency appreciates,this raises its GDP growth in $ terms,and the country whose currency appreciates more will grow faster in $ terms.

If India’s GDP was Rs 100 and the exchange rate 48.85,this means India’s $ GDP is 2.05. If,however,the exchange rate appreciates to 45.93,the same GDP will rise to 2.18. While India’s currency appreciated 6.4 per cent in 2010,from Rs 48.85 per $ in 2009 to Rs 45.93 in 2010,China’s currency appreciated only 0.9 per cent,from 6.84 per $ in 2009 to 6.77 in 2010. So India’s GDP got a push that was higher than China’s and thereby ended up beating the latter.

Whether this will continue in the years to come will depend on a combination of factors. First is the actual growth in each country in its local currency — if the planning agencies in both countries turn out to be correct,India will grow faster than China.

The $ growth rates,however,will depend upon what happens to currency movements against the $. If the yuan appreciates against the $ as most expect,while the rupee appreciates less,this will make China’s $ growth look higher and India’s $ growth look lower.

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