London, Sept. 15, 2010: By the year 2040, India will have an economy the size of Germany, Britain and France combined, Vince Cable, the UKs highly regarded secretary of state for business, innovation and skills forecast in a speech in London today.
Speaking to The Economist Emerging Markets summit, Cable, who once worked an India correspondent for The Economist, explained that China and India were merely reoccupying the dominant position they once occupied.
In many ways, the title of this talk, The New World Turned Upside Down, is a strange one, commented Cable.
This is because for most of human history the centre of gravity of the world economy was in areas we now call, in rather patronising terms, emerging. European ships went East because that was where the wealth was — be it in spices, cotton, porcelain or silk and the rest of it. Nevertheless, the rapid development of China and India is a remarkable phenomenon. It is clear that major so-called emerging markets have already emerged.
What he now wanted to do was to examine the consequences of re-emerging economies on the world economy, said Cable, now an increasingly familiar figure to Indians in the UK — for example, he was the main speaker last week at the annual dinner of the Indian Journalists Association where he threw away his prepared speech full of facts and figures and instead spoke informally.
The bigger emerging countries — China, India and probably Brazil — have achieved very substantial growth and reductions in poverty levels based largely on an expansion of their domestic market and domestic savings, he pointed out today.
In his opinion, it should not come as a surprise that China and India, two countries which each account for 20 per cent of the worlds population, will increasingly dominate the global economy.
Referring to the late British economist, he said that two hundred years ago, according to Angus Maddison, who did brilliant work on old economic statistics, China accounted for around 35 per cent of the worlds population and almost 30 per cent of world GDP, while India accounted for 20 per cent of the worlds population and 16 per cent of GDP. Back then, incidentally, the US represented 1 per cent of the population and 2 per cent of GDP.
With India growing in recent years at around 7 per cent a year, China at 9 cent and the western world at 2-3 per cent before the recession, it seems likely that, barring disaster, China will have a bigger economy than the USA well before 2040. By then, India will have an economy the size of Germany, Britain and France combined — with Brazil, Mexico and Russia also having an economy bigger than any European country.
The British governments commitment to improving relations with emerging markets has been backed by actions — the Prime Minister led the biggest British trade mission to India… and I was also recently in Brazil, as well as India. We also warmly welcome the glut of inward investment from emerging economies by companies — and institutional investors including sovereign wealth funds. Companies from emerging markets like Tata … are investing substantial amounts in the UK economy.
He told his audience The UK government is clear that a return to protectionism is not the way forward. In particular, concluding Doha would safeguard against potential protectionism.
But he also acknowledged that there are many competing pressures and negotiating a worthwhile global trade deal will be difficult. We know that there is resistance in the US Congress and parts of the EU and indeed there are sectoral interests in India and China too.
He summarised his main message: A lot is at stake… we cannot just assume globalisation will continue. Without serious political commitment it will fall apart.