Mumbai: India has a massive need for capital to catch China’s growth rate and fully benefit from a global shift in economic power to emerging markets, said Nouriel Roubini, the economist who foresaw the financial crisis.
China has been a hare and India a tortoise, but growth is accelerating in India, Roubini said on Tuesday. There is a massive need for both human and physical capital.
As the US, Europe and Japan struggle to recover from the worst recession since World War II, India’s main stock market index, the Bombay Stock Exchange’s Sensex, has soared over the last 12 months and its economy may grow 8.2% in the year starting 1 April, the fastest in two years, the finance ministry said in February.
Positive signs: Nouriel Roubini. Gino Domenico / Bloomberg
Chinese gross domestic product (GDP) grew 10.7% in the three months to December, the quickest pace since the fourth quarter of 2007.
Emerging markets are set for a V-shaped recovery, and the positive aspect about India is that its economy is less dependent on exports compared with China, Roubini said.
India needs physical capital in the form of infrastructure that can be provided by both public and private investments or private-public partnerships, he said. India also needs to invest in human capital, innovation and land reform and maintain social stability, he added.
China might be facing a greater challenge in maintaining its double-digit growth rate as compared with India, he said, favouring the more balanced economy of India over China.
While the economies of India and China are not large enough to lead global growth, emerging markets remain bright spots compared with the US, Europe and Japan, which all face deflationary pressures, Roubini said at a conference organized by Edelweiss Capital Ltd in Mumbai.
The size of the emerging markets is going to become larger and larger, and it’s going to become greater than the GDP of the US, he said. It may take 20-30 years, depending on relative economic growth, but the process will occur and we should get used to it.
Markets in the US and Europe, meanwhile, are still damaged from the crisis and US economic growth may slow in the second half as stimulus measures are phased out and the job market remains weak, he said. The US recovery may be U-shaped, he added.
Asian nations such as China and India have begun withdrawing monetary stimulus to avert asset bubbles and curb inflation as their economies rebound. Investor Mark Mobius had in March predicted that India’s stocks will outperform other emerging markets.
The Sensex index has surged 82% in the past year as is set for its fifth straight quarterly gain, the longest expansion since 1994.