The Hindu : National : Big role seen for India, China in world economy

Online edition of India's National Newspaper
Sunday, Oct 24, 2004

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National

Big role seen for India, China in world economy

By Our Special Correspondent

NEW DELHI, OCT. 23. Four countries — Brazil, Russia, India and China (BRIC) — are likely to play a significant role in the world economy sooner than 2050, a new report by international consultants Goldman Sachs has said.

In its report last year, the consultant group had projected that BRIC would emerge as a significant factor in the world economy by 2050 but the update, a year later, says that BRIC's rise as a potentially transforming event in the world economy could be much sooner.

According to the Goldman Sachs study, in less than 40 years, the BRIC's economies could be larger than the G-6 in dollar terms; China could overtake the U.S. as the world's largest economy in a little over 30 years. Of the current G-6, only the U.S. and Japan may be among the six largest economies in 2050; new demand from BRIC's economies could rival the current G-6 within a decade and dwarf it by 2050; individuals in BRIC are still likely to be poorer on an average than individuals in the G-6 countries, except in Russia.

Role of middle-class

The report says continued growth in BRIC would push up trend growth for the world in the near-term and could see a rapid expansion in the middle class in these four countries. The appetite for energy and commodities, where BRIC has been most visible so far, was likely to stay strong with the peak pressures probably felt over the next decade. BRIC's presence could also soon begin to be felt more in areas where they have so far been a smaller force, the areas being consumer durables and capital markets. "In fact, in each of the energy, auto and capital markets, BRIC has the potential to be a major source of growth within 10 years and perhaps a dominant one in 20,'' it says.

In the section on `BRIC and the world,' it says that over the next few years, BRIC development (and in particular continued industrialisation in China and India) could push the trend world growth rate above 4 per cent. World growth trends could remain above the average of the last 20 years (3.7 per cent) for around a decade, though after that global demographic pressures were likely to lead to a gradual decline.

The BRIC share of world growth could rise from roughly 20 per cent in 2003 to more than 40 per cent in 2025. Their weight in the world economy could rise from less than 10 per cent now to more than 20 per cent in 20 years. Also, the BRIC's impact on global markets could follow a sequence. Commodity markets are already the clearest pressure point for BRIC growth and their impact on those markets could be at the peak in the next decade. The importance of BRIC as consumer markets is likely to be the next phase and could be a major story in the next 10 years. In the capital markets, BRIC's importance is likely to lag behind and build gradually over the next 20 years, the report says.

In the section on `BRIC and the middle class,' the report says that the number of people with income over $ 3,000 a year in BRIC — a level consistent with entry into the `middle class' — could nearly double in the next three years. In a decade, over 800 million people across the four economies may have crossed the threshold, a number greater than the population of the U.S., Western Europe and Japan combined. In China alone, the number of people with incomes over $ 3,000 could increase by close to 10 times in the next decade and by nearly 14 times in India, though off a much lower base. In Brazil and Russia, that number could more than double. By 2025, there could be more than 200 million new people (more than the population of Japan) in these economies with incomes above $ 15,000, up from a tiny fraction today. Individuals in G-6 will remain significantly wealthier than those in BRIC. By 2025, income per capita in the G-6 could average roughly $ 35,000. At that point, only 24 million people in BRIC economies are likely to have incomes above that level, the report says.

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