GDP Wars..!! India vs. World

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ANKITSHAH
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GDP Wars..!! India vs. World

#1 Postby ANKITSHAH » Tue Dec 16, 2014 4:34 pm

Flipping through the articles of Financial Times on 8th Oct, 14, I was awed by the headline “China leap forward : overtakes USA as the world’s biggest economy”. This news made me ponder on the presence of Indian economy in the world. I quickly browsed through Wikipedia and found that India stands 10th in the nominal GDP ranking and 3rd in the Purchasing Power Parity (PPP) ranking.
The nominal GDP measures the market values of the final goods and services a country produced in a year calculated at the government official foreign exchange rates the exchange rates of that year. The nominal GDP does not take into consideration the cost of living (inflation) of different countries and hence the ranking of the countries may greatly vary depending upon the fluctuations in exchange rates. To avoid this ambiguity of fluctuation of exchange rates, the comparison of the countries is done on the basis of purchasing power parity (PPP). PPP takes into account the relative costs and inflation and hence is considered to be a real measure of the economy.
According to neo classical economists, several factors which contribute to the GDP of a country are consumptions of households, investment in productive assets, government spending on goods and services, exports and imports of the country. The Industrial, agricultural and services sector contributes a major chunk of economy of any country.
According to IMF (World Economic Database, October, 2014) the GDP (PPP) of India in 2013 is 6.77 (Trillion US$).The contribution from Industrial, agricultural and services sector are 20%, 15% and 65% respectively. It can be observed that in the initial phase of the growth of a country, a major contribution is by the manufacturing sectors and then when it establishes its manufacturing units a major contribution comes from services sector. It can be inferred that after the initial stages the manufacturing sector becomes more services centric in order to remain competitive and hence the output and employment at service sector increases.
For China, the contribution in GDP is maximum by the manufacturing and industrial sector (47%) followed by services sector (43%) and agricultural sector (10%). The total GDP of China as per IMF (World Economic Database, October, 2014) is 17.45 (Trillion US$) for the year 2013.If we compare China's economy post World War II we would found that China has undergone a drastic change with 7% increase in its GDP. This significant growth is due to rapid increase in manufacturing of hi-tech goods with large scale hi-tech manufacturing firm like Lenovo, Baidu.com and Huawei Technologies .The infrastructural development in China has also been quite higher than that of India, which has added to the growth of China GDP. In general, it can be inferred that China spends much more in its infrastructural facilities than India. It can also be speculated that these manufacturing sectors in China will augment the services sector in china and in future the services sector contribution might surpass the contribution by manufacturing firms.
The trend of contribution of sectors in USA is quite different from India and China. For the year 2013, GDP of US is 17.56(Trillion US$) as per IMF (WEO, October, 2014).The major contribution in GDP is by the services sector (77%) followed by industrial sector( 22%) and agricultural sector(1%). Information, retail, scientific, technical and professional services form the major parts of services sector. Wholesale and retail trade comes up as the leading business areas in services sectors. Contribution from major retail firms such as Wal-Mart, Sears, Target, McDonald’s etc. has helped to shape the image of America that exists today. This industry has brought in tremendous amounts of revenue and according to the U.S. Census Bureau (2009) the total amount of sales was $4.13 trillion. However if net income is considered, finance and insurance services leads in services sector in USA. The US has the maximum amount of total insurance premiums. These premiums amount for $1.2 trillion, which to put in perspective is about 33.3% of the world market. This sector is a reliable industry and clearly a world leader. The American banking industry is also very competitive industry that is strongly supported by the economy. The banking sector in a way is responsible for the growth of retail sector at US. It has been a backbone of the American economy for many years.
Japan having a GDP (PPP) of 4.66 (Trillion US$) for year 2013 ranks 4th in the world after India (WEO, October, 2014). The key driver of Japan’s economy is the services sector which contributes around 71% to its GDP followed by manufacturing sector ( 27%) and agricultural sector(2%).The major services sector in Japan include banking, insurance, retailing, transportation and telecommunications. Industries in Japan include motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, and processed foods. Japan is the home of major automotive giants like Toyota, Renault-Nissan, Honda, Suzuki, Mazda and Mitsubishi. The automobile sector due to its increasing demand across the world managed a growth of more than 10% in 2009 despite of the global crisis. Japan is also the world’s largest electronics manufacturer with premier companies such as Sony, Casio, Mitsubishi Electric, Panasonic, Canon, Fujitsu, Nikon, Yamaha etc. In the year 2012, India overtook Japan to become third-largest economy in purchasing power parity. This was majorly because of the tsunami at Japan which badly affected hit its growth rate (0.75%) as compared to then growth rate of India (7.24%)
Analyzing the trends of major contributors of the world’s economy, we can infer that contribution of services sector in GDP of India still has a good scope of improvement. The major contribution is by IT services companies of India. Majority of the services companies is dependent of foreign firms for their revenue. To boost the services sector, Indian government is trying to take a series of economic reforms to invite more foreign companies. As per the World Economic Outlook (WEO) report of IMF the GDP of India is expected to rise by 5.6% by the end of this year and to 6.4 % by 2015. An increase in investment and exports are the expected to enhance the economy of India. The new government formation in India has renewed the confidence in market which brings in a lot of hopes to the Indian economy.

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