India may beat China next year: World Bank

NEW DELHI: China said its economy expanded 9.6% in the three months to September, its slowest pace in 12 months, a day after the World Bank tipped India to outpace the world’s second-largest economy in 2011.

The multilateral lender had pared China’s growth forecast for 2011 to 8.5%, just a shade below its projection of 8.6% for India, catapulting the latter to the top of the growth chart. If the bank’s predictions come true, India will, for the first time, become the fastest-growing among large economies.

Faced with a 23-month-high inflation and growing pressure from the rest of the world to let its currency appreciate, China faces severe deterrents to growth. “With weak global growth and fading impact of the stimulus package, we project growth to slow to 8.5% in 2011,” said the World Bank report. In absolute terms, however, China’s gross domestic product at $4.9 trillion is about 3.78 times that of India’s. The US economy, the world’s largest, is 2.9 times the size of China’s and 11 times India’s.

China’s industrial production also fell from the previous quarter to 13.3%, a report of the National Bureau of Statistics said. However, industrial production rose 16.3% in the nine months to September.

Others also expect India to start growing faster than China, but not so soon. A research report by Morgan Stanley had said India could overtake China’s growth rate by 2013 and expected it to be notably ahead from 2015 onwards.

“China growth forecast is a bit on the downside,” said Jehangir Aziz, chief economist, JPMorgan. He expects China to grow closer to 10% for FY11. Nonetheless, there is agreement among economists that China faces many hurdles ahead.

The Chinese central bank raised the benchmark interest rate by 0.25% to 2.25% on Tuesday after nearly three years to rein in prices and inflation, which touched a 23-month high of 3.6%.

The Chinese government earlier in the year had set a ceiling for inflation levels at 3%, and had predicted that inflation would moderate in the second half of the year.

Its biggest worry, however, would be the growing global friction over currency values and calls for China to let the yuan appreciate and address the large surplus it runs with other countries for better distribution of growth.

But China’s main challenge going forward would be to change the structure of the economy, from a export driven to consumption driven economy, wherein it becomes less prone to external shocks in demand.