S&P chief economist sees great potential for economic growth in India

India has overtaken China as the world’s fastest-growing economy on reforms undertaken by prime minister Narendra Modi. Danish Siddiqui / Reuters

India has the highest potential for economic growth in a world that will be defined by mediocre growth in the next couple of years, according to Paul Sheard, the chief economist at S&P Global.

The net energy importer has overtaken China as the world’s fastest-growing economy as low oil prices and reforms undertaken by the prime minister Narendra Modi since taking power in 2014 boost investment.

That has made the country a darling in the world of emerging market investment, where most of its peers are mired in commodity-related doldrums or political strife, sometimes both, like Brazil and Russia.

“India could grow for the next 20 to 30 years at 6, 7, 8 per cent,” Mr Sheard said in Dubai. “Why? Because it’s still an underdeveloped economy, it still has a long way before it becomes developed.

“Long-term growth potential, the demographics of India are favourable, the per capita incomes are still quite low,” he said.

“India is now growing faster than China. India is maybe growing 7 per cent, 7.5 per cent. India is about one-third the size of China, but now it’s growing faster than China.”

India’s outlook was given a shot in the arm after Mr Modi took office. He lost little time in his plans to overhaul the economy.

As well as moving towards market-based energy pricing by removing energy subsidies, Mr Modi is also ready to pass a goods-and-services tax, open up more to foreign investment and better target subsidies for fertilizer, cooking gas and food.

Even though some critics maintain that India has been more of a beneficiary of low oil prices than Mr Modi’s reforms, the country is set to grow at an average of 8 per cent until 2018, outstripping Chinese growth, according to the latest S&P report on the country in December.

Mr Sheard said, however, that while there was potential in India as well as other Asian emerging markets including China and Indonesia, the ability of these countries to fulfil that promise depends on their ability to strengthen institutions and improve governance.

Meanwhile in the developed world, the economist said he expects most countries to continue growing at more or less the same pace that they have been doing in the past couple of years, with overall global growth ranging between 3 and 3.5 per cent.

“We don’t think that there will be a sudden rebound but there won’t be a sudden falling off the cliff,” he said.

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