IMF Projects, India Far From Replacing China as Global Growth Engine: HSBC Reports

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• Oct 13, 2023 | Poonam Nath

According to IMF projections, HSBC expects the gap between the two economies to widen further shortly...

Digital Desk: As stated by HSBC Holdings Plc, India's outstanding recent economic improvements are unlikely to overtake China as the world economy's main growth engine anytime soon. 

"The numbers don't exactly add up," said economists Frederic Neumann and Justin Feng in a paper released Friday. India currently "runs on too few cylinders," they claimed, while China is "simply too large to have its importance for the world economy easily eclipsed."

According to IMF (International Monetary Fund) projections, HSBC expects the gap between the two economies to widen further shortly, reaching $17.5 trillion by 2028. That is the size of the European Union's economy today. Last year, the difference between the two was $15 trillion.

The bank's view differs sharply with others' bullish forecasts, such as Barclays Plc., which stated earlier this week that a steady 8% growth rate for India will allow it to overtake China as a global economic driver in the next five years. 

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The HSBC analysis also emphasises the disparity in consumption and investment trends between the two Asian behemoths. 

Even assuming zero growth in China and tripling investment expenditure growth in India from its current average, the economists estimate that it will take another 18 years for India to catch up to China's investment spending. 

Currently, China accounts for over 30% of global investment, whereas India contributes less than 5%. Its global consumption share is also less than 4%, compared to Beijing's 14%.

Despite this, economists predict India will contribute significantly to global demand for commodities, consumer products, and capital goods, making HSBC economists "bullish on India."

The South Asian country will most certainly become a "far bigger player in global trade, possibly attaining a similar, key role in services exports as China occupies in goods supply chains today," they said. 

The International Monetary Fund predicts that India's economy will grow by 6.3% in 2023 and 2024, whereas China's economy will rise by 5% and 4.2% during the same period.