Will India replace China in influencing global economic growth? Raghuram Rajan says…

Referring to the recently released annual report by the World Bank wherein experts predicted a global recession in 2023, former Reserve Bank of India (RBI) governor Raghuram Rajan has said.

That it is premature to think that India will replace China in influencing the world economic growth. “The argument that India will replace China is very premature as India is [a] much smaller economy as of now,” Rajan said on Tuesday at a press briefing of the World Economic Forum (WEF) Summit being held in Davos, Switzerland till January 20.

He, however, added that the situation may change in the future as India is “already the fifth largest economy” in the world and “it can keep growing”, according to news agency PTI.

Rajan’s statement comes a day after official data showed China’s economy grew only 3 per cent in 2022, which was one of weakest in 40 years. The slump was attributed to the Covid-19 pandemic and a real estate crisis.

Furthermore, official data revealed on Tuesday that China’s population dipped in 2022 for the first time since 1960, causing more concern for the Asian country’s economy and cementing the possibility of India overtaking as the world’s most populous nation soon.

The former RBI governor said any recovery in the Chinese economy would boost the global growth prospects. He added that policymakers at this point of time are looking at the labour and housing markets.

Talking about the US, Rajan said housing sales are not bleak in the country, but real estate prices are also not dropping.

“Is it all gloom and doom? Not probably…If Mr Putin decides to end the war (Ukraine war due to Russian invasion of the east-European country), there would be certainly an upside,” he added.

“China is working its way through pandemic and there would be a Chinese recovery this year, probably as early as March or April. Some of that would be in domestic services which may not have any impact outside. But any improvement in manufacturing may have some impact by way of softening prices outside,” he said at the WEF briefing.

Last week, the World Bank in its annual report forecast that the global economy would come “perilously close” to recession this year, driven by weaker growth in all the world’s top economies, including the US, China and Europe.

It also slashed its prediction for global growth in 2023 by almost half to only 1.7 per cent from its earlier projection of 3 per cent. If the forecast turns out to be correct, it would be the third-weakest annual expansion in 30 years, behind only the recessions that arose from the 2008 world financial crisis and the Covid-19 pandemic in 2020, The Associated Press reported.