India’s Per Capita Income Likely To Grow 3.5% Faster Than China: Brookings Institution

India’s per capita income is expected to grow at an average of 3.5% faster than that in China due to factors like strong investments in labor and human capital, particularly in STEM, massive upgrading of physical capital and higher productivity, according to a report by Brooking Institution.

The new analysis published by Brookings Institution compares India and China’s per-capita income.

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“We estimate that convergence in per capita income levels for India-China is very possible (and latest) by 2044. This means that per-capita growth rates in India should be higher than China on a sustained basis,” the report said, adding that between 2010 and 2019, per capita GDP growth in India was higher than China with 5.2 percent and 4.5 percent, respectively.

The report further projected that India is likely to continue to grow faster than China for the next two decades bridging the gap between per-capita incomes in both these countries.

Over the last 20 years, India’s total factor productivity exceeded that of China by 0.5 per cent per annum and in the last 10 years excess TFP growth was 1.5 per cent per annum. 

“Factors that support India’s economic momentum are strong investments in labour and human capital, particularly in Science, Technology Engineering, and Mathematics (STEM), massive upgrading of physical capital in India and higher productivity,” it said.

Per capita incomes of both countries

India will take anywhere between 19 and 22 years from 2023 for its per-capita income to be the same as that in China, it added.

The analysis looks at India-China growth forecasts and shows how within 25 years of 2019, India would achieve the same GDP per-capita level as that of China. 

The report further added, “ Economic momentum has shifted towards India – as India is expected to lead the global growth story while China slows and becomes a drag on the global economic growth.”

Strong structural reforms undertaken by India since 2014 have contributed to its growth momentum and have helped India’s per-capita income grow faster than that in China for the first time since the 1960s.

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In terms of labour force, the report projects that China will witness a 0.7% decline in potential labour force every year, whereas, in India it is expected to increase by 0.72% per year. 

High aggregate rates of investment in China are set to decline from the 40+ levels over the last two decades—and Indian investment levels to increase from the 30+ levels. “ In China, housing sector investments are a drag; in India public infrastructure investments are a huge plus. Going forward, investment levels in both countries are expected to converge in the mid-30s,” the report said.