India Is Catching Up

Traditionally, the US, Western Europe and Japan also called the famous triad, have provided the economic leadership to the international economy. Japan showed all promises of greater economic growth in the 80s but only to falter in the late 80s buffeted by speculative bubbles and eventually slipped into a tailspin of recession through out 90s. despite experiencing Viagra economic growth in the 90s- one of the longest economic expansions in the US, that imperialist power is now getting weighed down by huge current account deficits, and the consequent loss of confidence in dollar.

With the launch of Euro, Europe is now more unified monetarily but sluggish economic growth and huge unemployment continue to plague them. Before the onset of 1997 financial crisis the Asian miracle economies were poised to become the natural leaders of 21st century. But these tiger economies got into serious economic trouble and banking crises and they are now back on their feet.

However, the emerging great players/leaders in the economics game are China and India. More particularly China has been enjoying an unprecedented growth rate, suffused with significant current account surplus. The significant point to note is that for more than a decade it has been cooperating with a rigidly fixed exchange rate with dollar, deriving thereby a mercantilist advantage of an undervalued exchange rate to boost its exports. Not only its wage rate is very low but even the interest rate the cousin of exchange rate has been also kept at a reasonably moderate level to assist the process of growth. Small wonder then, China is sitting on a mountain of $ 1 trillion exchange reserves and more recently it has shelled out a few million dollars for private equity investment in order to get better returns.

Will India compete and also cooperate with China strategically to become a leader in the economics game? There are reasons to believe that India is catching up. It may not be emerging as a raging tiger but as a slow moving sure footed elephant, it has been evolving as one of the high growth profile economies with sound financial system and a good institutional structure. Despite a cumulative failure on agricultural front, thanks to service sector growth, the overall growth statistics is very impressive.