India, the world's third-largest economy by 2030? Dream on

According to global energy giant BP, India will be the world’s third-largest economy by 2030. “By 2030, China and India will be world’s largest and third-largest economies and energy consumers, jointly accounting for about 35 percent of global population, GDP and energy demand,” BP’s chief economist, Christof Ruhl, said, releasing BP’s Energy Outlook 2030.

Heady words, but difficult to believe in the current climate.

It’s doubtful how anyone can predict where India’s economy will be in the next 18 years, given that no one got it right even 12 months ago. Back then, cheery estimates of 9 percent-plus growth were being bandied about. Now, India’s GDP growth in the financial year ending March 2012 is predicted to slow to 7 percent or lower.

In the quarter ending December, growth could be even worse - 6.4 percent - according to a Reuters poll of 26 economists. That would be the slowest pace in more than two years. India’s quarterly GDP data will be released on 29 February.

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The outlook for the next financial year, starting 1 April, isn’t a great deal better: GDP is expected to expand below 8 percent. Of course, that was before oil prices started roaring. With international crude prices soaring above $120 a barrel, India’s fragile recovery-in-the-making is threatened once again. A Macquarie report warned that India should brace for an ‘ oil shock’ that could push up inflation again and prematurely stall the interest rate-easing cycle.

That will be a big blow to an economy that has been wheezing under the strain of 13 interest rate hikes since March 2010, policy logjams in several sectors ranging from coal and power to aviation and mining, and a slowdown in infrastructure investment. Oh, and let’s not forget the turmoil in Europe and a sluggish US economy, which have put a lid on India’s growth in exports.

Combined, they threaten to push down the economy’s trend rate of growth in the medium term. How the economy performs after that will depend a lot on what happens over the next few years. Any bets, anyone?

Given the unpredictable world we live in today and the various conflicting economic forces we face, economic forecasting, even for the next few years, has become an extremely challenging task. That’s why it’s hard not to be skeptical about BP’s assessment of where India’s economy will be in the next 20 years or so. So much can go wrong - and does usually.

Optimists might look at the big picture and point out that overall, India, despite everything, is still better placed than several developed economies facing zero or very low growth. Yes, but in that case, we might become a top economy by default - that is, because other countries are doing much worse, not because we’re doing any better. It’s a consolation prize and doesn’t exactly speak of the country’s immense economic potential.

At the pace we’re chugging along, it can become quite easy for another more nimble-footed competitor to overtake India . Already, there is some talk that the ‘I’ in BRIC (Brazil, Russia, India, China) could be replaced by Indonesia.

If India really aims to become an economic powerhouse by 2030, it has a lot of work to do.