Opinion The World in 2050

India will become the second largest economy in the world in PPP (purchasing power parity) terms by 2050.

New DelhiJanuary 10, 2011 11:06 AM IST First published on: Jan 10, 2011 at 11:06 AM IST

India will become the second largest economy in the world in PPP (purchasing power parity) terms by 2050. This has been widely reported in media,but the study isnt new. It has been updated. The original study,The World in 2050 was published by PWC in March 2006.

If one builds in labour input,as against the traditional capital input alone,one gets high rates of GDP growth for India,because of the demographic dividend. While this has been known,the first BRIC Goldman Sachs report was probably the first one to model this. If an economy grows fast,the currency also appreciates,and that increases GDP in US dollar terms.

Finally,there is the mathematical aspect of the exponential function and one often fails to appreciate its explosive nature. Thus,Indian GDP looks more respectable,if one projects beyond 2030 and up to 2050,instead of 2020 or 2025. Between 2005 and 2050,PWC projected real GDP growth of 5.2% in domestic currency or PPP terms. Indias demographic dividend will wear off beyond 2035 and some deceleration in growth is inevitable. So for the entire period,5.2% is probably not an under-estimate. Reflecting currency appreciation,real GDP in US dollar terms was expected to growth at 7.6%.

The March 2006 version projected a PPP per capita income of 21,872 US dollars for India in 2050. The March 2008 revision projected real GDP growth of 5.8% in domestic currency or PPP terms and 8.5% in US dollar terms. This was for the period 2007 to 2050. Thus,Indian growth and the currency appreciation effect were both raised upwards. What has recently been reported in the media is a further (January 2011) revision of the original report. The global financial crisis has preponed the relative advance of countries like China and India.

In PPP GDP,India will be the second largest economy in the world,after China,with a figure of 43,180 US dollars. However,using official exchange rates,India will still be 3rd (after China and US),with a figure of 31,313 US dollars.

There are several countries that have got stuck in what has been called the middle income trap,at a per capita income of around 5000 US dollars. There is thus no automaticity about such high growth rates happening. Not long ago,another report (funded by Asian Development Bank) talked about India becoming an affluent society by 2039,provided that middle income trap is avoided.

# Indian economy