US and Indian GDP growth rates - Lots of catching up to do

Yesterday's WSJ has a nice article titled "Is India Shining" by Gurcharan Das. Mr. Das was the former CEO of P&G in India. He made some interesting observations about the growth of the Indian middle class:
- Indian GDP has grown at an average annual 6% real rate for two decades, making it one of the fastest growing major economies in the world over a 23-year period.
- The Indian growth rate of the previous 30 years is double the rate at which the West created its Industrial Revolution.
- India's population growth has slowed down to 1.7%, compared to a historic 2.2% growth rate.
- Almost 170 million Indians have risen out of destitution since 1980 as the poverty ratio has declined to 26%.
- If India's economy continues to grow at this rate for the next few decades, then a majority (mainly in the south, west and northwest) should be middle class by 2025.
- At the current rate Indian per-capita GDP will catch up to the US per-capita GDP by 2066.

I was pleasantly surprised by Mr. Das's forecast that Indian per-capita GDP would catch up with US per-capita GDP by 2066. First of all, it is good news, but it is also depressing since 2066 is too far off for my taste, since I expect to be dead by then :(

I tried to verify where Mr. Das might have got this forecast. According to the CIA Fact Book, the Indian per-capita GDP is $2,600 (actually $500, but this number is adjusted by the CIA for purchasing power parity) and the US per-capital GDP is $37,600.

Also, according to this interesting graph, the US inflation-adjusted per-capita GDP has grown from $13,800 in 1949 to $37,600 now, or an annual growth rate of 2% per year during this period. Assuming it will grow at an annual rate of 1.5% for the next 60-odd years, it will grow to $97,500 in 2066 in today's dollars. For the Indian per-capita GDP to go from $2,600 to $97,500 in the next 64 years, it has to grow at a compounded annual inflation-adjusted growth rate of 5.8%. Let's say the population is growing at 1.5%. Then the overall Indian GDP has to grow at a real annual rate of 7.3% for the next 64 years, to catch up to the US. That does imply a stupendous productivity growth. Assuming an inflation rate of 2-2.5%, it would also translate to a nominal GDP growth rate of 9 to 10% per year. (Im not sure what will happen to purchasing power parity as a result of all this growth, but we will ignore it.)

So, Mr. Das is basically forecasting that India will keep growing at about 9-10% every year for the next six decades. It is an ambitious forecast. Nothing wrong in dreaming big, but one should also note that virtually no corporation has grown at such a high rate for six decades. It will be even rarer for a large country's economy to do so.

Bala Dharan