indian economy outlook

Growth in the Indian economy has gradually
strengthened over the past two decades, with
annual real GDP growth averaging 6 per cent since
1990 (Graph B1). Growth has been particularly strong
since a drought-related slowdown in 2002, averaging
around 8 per cent. Reflecting a significant monetary
easing as well as a relatively low exposure to global
trade, growth in India slowed only modestly during
the global financial crisis; India is estimated to have
been one of the fastest growing economies in the
world in 2009. While incomes have grown rapidly,
they remain low, with per capita annual income at
only just over US$1 000. As a consequence, while
India accounts for close to one-fifth of the worlds
population, its share of global output remains
relatively low, at 2 per cent when output is measured
at market exchange rates and around 5 per cent on a
purchasing power parity basis.
The Indian economy looks likely to continue to
expand at a relatively rapid pace in coming decades
and to become an increasingly important part of the
world economy. Long-term population projections
suggest that, notwithstanding a declining fertility
rate, Indias population will continue to grow rapidly
through natural increase, and United Nations
estimates suggest it will surpass China as the worlds
most populous nation in around two decades. Further, economic growth in India is
expected to continue to benefit from compositional
change in its population structure; the working-age
share of the population is projected to continue
to increase over the next two decades, so Indias
potential labour force could grow even more
rapidly than the anticipated increase in its total
population. This contrasts with projected declines
in the working-age share of the population not
only in the major developed economies, but also
in other Asian economies such as China and Korea.
In addition to the boost from demographic factors,
Indias per capita income is likely to rise steadily as
the composition of the labour force continues to
shift away from subsistence farming towards the
industrial and services sectors.

The growing importance of India in the global
economy has also been reflected in a rise in Indias
importance as a trading partner for Australia. Indian
demand for Australias exports has risen sharply,
with particularly rapid growth over the past decade.
This has seen Indias share of Australias total exports
increase to around 6 per cent a four-fold increase
in less than a decade. Growth has been
rapid for exports of both goods and services.
Part of the increase in goods exports to India reflects
gold exports, which have risen from negligible levels
a decade ago to account for around two-fifths of
total Australian gold exports in recent years. Much of
these gold exports to India are re-exports gold that
has been imported from elsewhere for processing in
Australia and thus the value added of these exports
is relatively low.
Coal exports have also risen strongly over the past
decade and accounted for over 40 per cent of
Australias total goods exports to India in 2008/09.
Coal exports are likely to continue to grow over the
next few years, as significant planned expansions in
Indias steelmaking capacity come online. Liquefied
natural gas (LNG) is another likely source of future
growth in Australias goods exports to India. LNG
production capacity in Australia and import capacity
in India are both projected to increase significantly
and long-term supply contracts have recently
been agreed for the sale of Australian-produced
LNG to Indian buyers.
Source: RBA