The World’s Fastest-Growing Large Emerging Market

Since the 1980s, China has been the world’s fastest-growing large emerging market, growing by an average of nearly 10% per year over the past three decades.  However, as the Chinese economy has slowed in 2015, and as its future has grown more uncertain, an emerging market has arisen to take the title of the world’s fastest-growing large emerging market away from China, India.  Not only have India’s economic growth rates overtaken China’s this year, the outlook for growth in India is now decidedly more optimistic than China’s, the first time that this could be said in recent decades.  While it is highly unlikely that India will be able to replicate the 10%-level long-term economic growth rates that China did in the previous three decades, it will nevertheless solidify its position as a key growth market for international trade and investment in the coming years.

The latest sign that the Indian economy was growing stronger was the 7.4% year-on-year GDP growth rate that the country recorded in the third quarter of this year.  As a result of this strong third quarter, the Indian economy has outgrown its Chinese counterpart by a margin of 7.3% to 7.0% over the first nine months of 2015.  Once again, the key driver of this growth in India was the expansion of the country’s domestic market, as India’s consuming-age and working-age populations continue to grow at a rapid pace, in contrast to China’s rapidly aging population.  In addition, some of this domestic growth was due to lower energy and commodity prices, which helped to boost consumer and business spending in recent months.  Growth would have been even higher in the third quarter had it not been for a drought that has severely impacted agricultural output in many areas of the country.

Looking ahead, the Indian economy is expected to continue to grow at a healthy pace and to remain the world’s fastest growing large emerging market.  After growing by a forecasted 7.3% this year, we expect the Indian economy to expand by 7.5% in 2016, 7.7% in 2017, and finally, 7.8% in 2018.  As has been the case in recent years, it will be the expansion of India’s domestic market that will continue to drive this growth.  However, if India hopes to achieve even higher levels of economic growth in the coming years, it will have to do much more to boost the country’s export-oriented industries, particularly in the manufacturing sector.  This would include massive investments in the country’s infrastructure and major economic reforms aimed at attracting foreign investment to such industries.  Until this is achieved, India, while retaining its position as the fastest growing large emerging market, will fail to achieve the levels of growth that China did until recent years. 

The economic slowdown in China has forced investors and exporters to expand their search for new growth markets and, as can be expected, India is among the first markets that they consider as opportunities for future growth.  However, anyone expecting India to provide a China-like boost for their investments or exports need to remember that, while India is home to 1.2 billion people, its economy is no larger than that of Italy.  As a result, India’s contribution to global economic growth in the coming years will remain very limited (just one-fifth of the contribution of China and one-third the contribution of the United States).  Moreover, India remains a challenging market for many foreign investors and exporters, despite the efforts by the government of Prime Minister Narendra Modi to improve India’s investment climate and its export competitiveness.  Therefore, while India’s economy is poised to enjoy high levels of growth in the years ahead, it will take a long time before India presents investors and exporters with the growth opportunities that China has provided in recent years.