India’s GDP in 2018: ‘Inevitable’ to be a drag on GDP growth
India’s gross domestic product (GDP) has plunged to its lowest level in six years, but it is not only the slowdown in manufacturing that has hurt the economy.
The slowdown has also had a knock-on effect on India’s trade with China.
In a new report, the McKinsey Global Institute predicts that India will be hit hard by a slowdown in Chinese trade by 2019-20.
The impact of the slowdown on India is obvious.
India has been the largest importer of Chinese goods since 2012, but China is the world’s second largest importers of Indian goods after the United States.
The slowdown has put India in the position of having to deal with a significant amount of Chinese imports.
The McKinsey report notes that the Chinese economy is set to expand by 6.9% this year.
By 2019, China will have overtaken India as the largest trading partner.
But India’s dependence on Chinese imports will be a major drag on its GDP growth, the report predicts.
In 2019, the slowdown will hit India particularly hard because of the large amount of imports from China, said Ajay Raghavendra, a senior fellow at the McKinseys Centre for Business Development and Policy Studies.
“If China continues to grow, India will suffer in the long term,” Raghava said.
The study projects that India’s economy will shrink by 1.5% this fiscal year, and by 4% in the following year.
The McKinsey analysts expect the trade deficit with China to widen to a whopping Rs 3.3 lakh crore ($2.5 trillion) by 2020, up from Rs 1.4 lakh crore last year.
In 2018, India exported to China $1.7 trillion, which equated to more than a fifth of the total exports from the two countries.
In 2019, India exports to China will rise to $3.3 trillion, up by almost half.
In the past two years, India has also been hit hard with the impact of a slowdown on its own exports.
India’s exports to Bangladesh plunged to $943 million in September 2018, down from $1 billion in September 2016.
The number of Indian exports to South Korea fell from $6.7 billion in 2019 to $4.6 billion in 2020.
India’s imports from Bangladesh have been increasing, with imports of rice and wheat reaching a record high of $5.6 trillion in 2018.
In contrast, imports from South Korea rose by $4 billion to $8.7bn in 2019, while imports from the US fell by $1 trillion to $6 billion.
The imports from India will continue to grow by around $8 billion to a total of $20 billion in 2021.