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Global Economic Meltdown


China, India play key role in global economic meltdown

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Hazel Heyer  May 07, 2008

DUBAI, United Arab Emirates (eTN) - Experts who attending the Arabian Hotel Investment Conference, held from May 3 to 4 at the Madinat Jumeirah in Dubai, believe the global slowdown won’t last and the synchronized inflation rate around the world will subside, and that India and China will neutralize the effects of the meltdown in the world’s economy.

Despite growing concerns over the economic meltdown, inflation and escalating oil prices, markets such as India and China will remain strong. Certainly, they will take the lead, experts advise.

Outlook for continued growth of the global economy was laid out by economic guru and chairman of Oxus Investments, Surjit Bhalla. He said there was every indication that despite the housing and financial crises in the United States, there was a reasonable chance of avoiding recession. According to him, this would be due to the impact of high growth rates in India, as well as in China.

China and India have dramatically transformed and revolutionized markets in Asia, growing five to ten percent per annum per capita. The rapid non-linear development of the middle class has changed both nations whose 50 to 60 percent population in the ‘80s were absolutely poor, living on $1 per day below subsistence level. Later, daily earnings went up slowly from $2 per day to $4 to $5 in the decade.

Today, India’s middle class is in the driver’s seat. “The world has not noticed because the consumption package rate was slow. It was not nothing investors worldwide were concerned about when world rates were $8 per day for non-poor in the western world. Today, India’s large force middle class boasts creating higher level of economy that has escaped poverty. Though it does not impact government policies, it demands working in a level playing field which certainly makes government react with middle class demands,” said Bhalla.

India and China’s middle class today is the non-absolute poor in the developed world, out of an absolute poverty line of PPP $1.08 (1993) compared to the absolute poor, developed economies’ PPP $7.77. The middle class line was approximately PPP $3700 per capita per year in 2007 price levels.

Purely out of self-interest, this economic strata believes in market virtues as the only way to prosper. “The middle class believes in property rights, free trade, rules of the game and anti-corruption,” added Bhalla.

This 2008, some 14.2 percent of the 400 million Indian population is middle class. Investment to GDP ratio grew incredibly high by 2000 percent, showing that transformation within the last five years grew investments by 9.5 percent, savings rate up by 12 percent and growth rates up 27 percent, Bhalla said

Today’s middle class is the major demand-generator of infrastructure with high demand for power, roads, airport, clean water, sanitation, as well as social infrastructure, education and health. Infrastructure in India and China has grown tremendously, however, China has not caught up with infrastructure capacity such has India.

Before the 1950s, India and China’s world output collapsed to 8 percent. In the 80s, over 50 years later, India and China were making 80 percent of world output in infrastructure, with India being more advanced than China. It also surpassed China infrastructure growth in the last years with the recent three to five years build up of industries.

The US accounted for 25 percent of world GDP growth, while India and China collectively accounted for nine percent. "Today, the US has dropped to 20 percent but India and China economies have more than doubled and now together also contribute some 20 percent,” Bhalla said adding, "This gives us a hint as to why current circumstances will not result in global recession or depression."

He also alluded to corruption in India; however corruption, as any emerging and part-emerging markets (such as Vietnam, Russia and China) would have, India’s is no longer an inefficient corruption, but rather an efficient one. As early as 2010, India will have surpassed positive economic growth of all emerging markets’ GDP including China’s.

The coalition governments are a regular feature of India since 1989. Congress and the BJP leaders have less then 50 percent joint vote. With globalization, the government cannot do damage any longer, said Bhalla.

Leaving the bureaucrats powerless is perhaps the ‘downside’ of the growing middle class and infrastructure in India (9-10 percent per annum in industrial growth, compared to China’s 6-8 percent). When politicians mess up, it’s still business as usual with an effect close to zero because they have decreased influence in causing damage. This makes it highly unlikely for India to lose competitive advantage or experience real interest rates going up significantly.

However, he reiterated there is no decline in corruption. “We have less inefficient corruption. We have an efficient one,” said Bhalla saying his people should make corrections quickly if they make mistakes following the path of progress - as the country wants to go full steam ahead, keeping education at the core in order to bring about ideas of business efficiency and fairness coming into a stronger market.

India, he said, is “in a sweet spot of growth that can last another decade of two.”

China, India play key role in global economic meltdown
Image via leightonint.com



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