By 2015 India to Top China as Fastest Growing Economy, Morgan Stanley Says

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India may overtake China as the world’s fastest growing major economy by 2015, as the South Asian nation doubles infrastructure investment and adds six-fold more workers than its northern neighbor, Morgan Stanley said.

India’s growth may accelerate to 9.5 percent between 2011 to 2015, Morgan Stanley economist Chetan Ahya said in an interview from Singapore today. India’s gross domestic product has expanded at an average 7.1 percent over the decade through the third quarter of 2009, compared with 9.1 percent in China, which surpassed Japan as the second-largest economy last quarter.

Prime Minister Manmohan Singh’s government plans to double spending on roads, ports and power plants to $1 trillion in the five years to 2017 to improve the quality of infrastructure that’s ranked below war-ravaged Ivory Coast and Sri Lanka. An increasing number of people joining the workforce and rising salaries will also help boost growth, Ahya said. Within the next two years, India will start matching China’s growth rate, Ahya said. After that “there will be a clear divergence of growth rates between the two countries,” he said. Japan’s nominal gross domestic product for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said today. Japan remained bigger in the first half of 2010, the government agency said. India will add 136 million workers, more than the population of Japan, by 2020 compared with 23 million that China will add, Ahya said. That will help the nation tap into a rising pool of savings and help finance infrastructure projects, he said.

‘New Tigers of Asia’

Poor transport and lack of other facilities in India could cost 1.1 percentage points of growth, or $200 billion in fiscal 2017, McKinsey & Co. said in a report last year. “There is a large deficit in our physical infrastructure which affects our economic development adversely,” Singh said in a speech yesterday. “The resources required to create good physical infrastructure are difficult for the government alone to mobilize. Therefore, we have endeavored to involve the private sector in our efforts.” India also needs to boost manufacturing in order to provide jobs for the expanding labor pool, according to Ahya. “We believe labor law reforms would be needed to support growth in labor-intensive industries,” Ahya said after Morgan Stanley unveiled it report “India and China: New Tigers of Asia, Part III.” India is ranked 89 out of 133 nations for its infrastructure, according to the World Economic Forum’s Global Competitiveness Index. India’s $1.3 trillion economy may accelerate to 8.5 percent in the year starting April 1 as Asia’s third-largest economy rebounds from the global recession, Prime Minister Singh said on March 23. --article from bloomberg by Tushar Dhara