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India, China cushioned global recession: Report

Sangita Shah

India came next to China in cushioning the global slump in the current year.

In a report titled "The World's New Growth Cushion" (April 19), Morgan Stanley Dean Witter has concluded that, "Were it not for the resilience of China and India, the world economy would have been in deep recession in 2002."

"It's hard to believe that two poor countries have finally reached the point in their development cycles where they can have such an influence on the world at large," the report states.

Referring to the data, it says: "Collectively, these two countries accounted for 1.1 percentage points, or 44 per cent, of the 2.5 per cent growth in world gross domestic product in 2001."

That's a little more than two-and-a-half times their collective share of 16.8 per cent in the world's GDP.

Without India and China, there would have been little doubt about the global recession call, the report states.

World GDP growth would have been closer to 1.5 per cent in 2001, matching the second-worst performance by the global economy in the past 30 years.

Together, China and India accounted for 38 per cent (2.250 billion) of the world's total population in 1999.

China's real GDP growth averaged 9.8 per cent over the 18-year period from 1984 to 2001 and India's averaged 5.6 per cent over the same number of years.

In both cases, these growth rates are several multiples of the 3.1 per cent recorded by the so-called advanced economies, the report states.

In 2001, China and India accounted for 51 per cent of pan-Asian GDP, including Japan, on a purchasing power parity basis.

"If these two nations stay on anything close to their recent growth paths, the rest of Asia will become increasingly marginalised by comparison," says the report.

Citing a recent International Monetary Fund report, it says the world economy narrowly skirted a recession in 2001.

The just-released World Economic Outlook-the IMF's official assessment of global growth and development-conceded it was a very close call. But, in the end, the world economy stopped at the brink.

"Reading between the lines, it doesn't take much to figure out what made a difference between worldwide recession and anaemic expansion. China and India saved the day, playing a critical role as the world's new growth cushion," MSDW has concluded.

The IMF's report was based on the purchasing power parity criterion, which puts individual countries on a level playing field. The value of like-quality goods and services is restated at parity across nations, and growth is calculated more on an apples-to-apples basis.

This can make a very big difference, especially in a period when the world economy is being buffeted by sharp cyclical fluctuations. For example, the IMF's official purchasing power parity-based construct of world GDP is estimated to have risen by 2.5 per cent in 2001, right on the borderline of the official recession threshold.

In contrast, the raw data, when added up at market exchange rates, point to only a 1.4 per cent increase-easily on a par with readings in the global recessions of the mid-1970s, early 1980s, and again in the early 1990s, the report states.

According to World Bank statistics, China's per capita income in 2000 was $857, whereas India's was $472.

The per capital income in the industrial world was $29,395 in 2000. But the scale and sustained growth dynamic of these economies are what count in the calculus of global growth.

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