Red Alert: China 2nd largest economy, can India be far behind!

The dragon has arrived: China has dethroned Japan as the 2nd largest economy in the world. China's GDP based on 'nominal GDP' calculations at $5.88 trillion has overtaken the GDP of Japan at $5.47 trillion in 2010. In terms of Purchasing Power Parity (PPP) China is already far ahead of Japan. India will take roughly 25 years to overtake the GDP of Japan to become the 3rd largest economy, at the current projections of the growth rates of various economies of the world. However, India's GDP growth rate is likely to grow at over 9% p.a. with a possibility of touching double digits, overtaking the GDP growth rate of China by 2014.

Despite this optimistic scenario on the economic growth front, there is a mood of despondency amongst the masses of India. The negative vibes have been generated because of the happenings of the past few months: primarily due to the unearthing of a series of scams and the perceived inability of the Govt. in tackling the menace of inflation. However, viewed optimistically there is a silver lining in both these negative factors. Corrupt practices amongst the polity as well as businesses have been in existence through the past, but their grabbing the centre stage needs to be seen as a blessing in disguise. The cases against corruption have been progressing satisfactorily and hopefully will reach their logical conclusion within the next few months. This will pave the way for a cleansed polity and fair business practices. Inflation is a concern for the population at large, but the structural shift in the nature of inflation is seen as a positive outcome of the spreading of the fruits of growth to the rural India. The surplus income available with the rural masses is driving the change in consumption patterns of the Indians leading to the runaway food inflation. I am confident that with the augmentation of the supply chain over the medium term inflation will moderate. 

The growth story of India is going to continue for at least a decade or two. The people of India will have to shed their pessimism to reap the benefits of growth. A larger chunk of the $550 million household savings of the people of India shall have to be channelised into productive assets. The over reliance on FII money to propel growth needs to be corrected. The financial system (Financial institutions lead by Banks and IFA's - Independent financial advisers) has a role cut out for itself. The objective of inclusive growth can be achieved by educating the masses of India to channelise their savings into growth assets (equity market/ mutual fund schemes) and be a part of  India's growth story. Investors need to stay invested in these growth assets to reap rich rewards in the medium to long term.