India poised to drive ahead of China as world’s fastest growing economy: IMF

The International Monetary Fund (IMF), in its latest update of its World Economic Outlook, has forecast that India is set to become the world’s fastest growing major economy by 2016-17, ahead of China that is facing industrial deceleration.

According to the IMF, India is expected to grow at 6.3 percent in 2015 and 6.5 percent in 2016, which is when it is forecast to cross China’s projected growth rate. China, which posted growth of 7.4 percent in 2014 – its slowest in 24 years – is projected to show a decline to 6.8 percent this year and 6.3 percent in 2016. The slowing Chinese economy is grappling with overcapacity in its export-dependent manufacturing sector and also bearing the brunt of slowing orders from Europe.

Meanwhile, India which promises to bear the fruit of the Narendra Modi government’s fast-paced reforms is showing signs of driving out of two years of sub-five percent growth; it notched 5.7 percent and 5.3 percent growth, respectively, in the first two quarters of the current fiscal year (2014-15). Banking on a focus on infrastructure and an across-the-board big push on the ‘Make in India’ programme, India is embarking on a growth-led future, which augurs well for the automobile and automotive component sectors, which are among the biggest contributors to the economy.

The IMF report states, “In India, the growth forecast is broadly unchanged, however, as weaker external demand is offset by the boost to the terms of trade from lower oil prices and a pickup in industrial and investment activity after policy reforms.”

IMF also says global economic growth in 2015 will be 3.5 percent, down from the 3.8 percent it had projected last October. “The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices. The United States is the only major economy for which growth projections have been raise,” the IMF report says.

“Global growth will receive a boost from lower oil prices, which reflect to an important extent higher supply. But this boost is projected to be more than offset by negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies,” the report adds.

The IMF forecast will be good news for the Indian auto sector, which accounts for 22 per cent of the country's manufacturing gross domestic product (GDP). The auto sector is one of the biggest job creators, both directly and indirectly – it is estimated that every job created in an auto company leads to three to five indirect ancillary jobs. India's domestic market and its growth potential have been a big attraction for many global automakers.

The Indian auto components industry is one of the fastest growing industries and is riding on the success of the automobile sector. Coupled with growing demand and technological advancements, the auto components industry in India has emerged as a key market in Asia as well as the world. The country currently supplies auto components to a number of international automobile makers, such as General Motors, Toyota, Ford and Volkswagen, amongst others.

A joint report of Automotive Component Manufacturers Association of India (ACMA) and McKinsey forecasts automotive component to be a US$ 100 billion industry by 2020, compared with about US$ 35.1 billion today. The report predicts revenue to come from both local sales and exports.

Currently, India is ranked 22 among global component exporting countries. China is at the third spot on the list led by Germany and the US. India is forecast to jump to the ninth spot in exports by 2020.