India and China are likely to be main growth drivers among the Bric nations and the growth gap between two Asian giants is expected to narrow down in the years ahead, a Credit Suisse report has said.
According to the report, though the slowing growth rate of Bric (Brazil, Russia, India and China) countries has raised questions over the countries' longer term prospects, going forward, China and India are expected to be main growth drivers among the group, however a return to pre-crisis levels is unlikely.
The report added that "within this picture, we believe that the growth gap between China and India will narrow".
Factors like moderate investment spending and constraints to labour force growth would limit China's growth rate, while, India in principle has the best potential to generate high growth over the longer term, the report said.
"India in principle has the best potential to generate high growth over the longer term, simply because its starting point is the lowest and its catch-up potential thus highest," the report said.
Explaining further, the report said the "pool" of labour that can be moved out of agriculture into more advanced and productive sectors is still enormous. India had been growing around 8-9 per cent before the global financial meltdown in 2008. The growth rate in 2011-12 slipped to a nine-year low of 6.5 per cent.
According to the official data, the Indian economy grew by 5.3 per cent in the July-September period this year, while in the quarter ended June 30, the economy grew by 5.5 per cent. Regarding India, the report said the key to success is to further encourage (already high) private saving and guide it into private sector investment instead of inefficient government spending.
Moreover, foreign investment and technology transfer from abroad needs to be encouraged, and regulatory barriers to manufacturing and service sector expansion needs to be eased. China meanwhile, is likely to continue to benefit from fairly high domestic savings. "Despite recent doubts, Chinese government policy will probably also remain more effective in maintaining growth while rebalancing the economy after the recent excesses," Credit Suisse said.