India has highest growth potential, says Fitch study

New Delhi: India has highest medium-term growth potential among largest emerging markets, said rating agency Fitch on Thursday.

Fitch said that new estimates of supply-side potential GDP growth over the next five years highlight the importance of demographic factors and investment rates and place India at the top of the list among the ten largest emerging markets  covered in its global economic outlook  forecasts.

“India’s projected potential growth is 6.7 per cent per annum. China and Indonesia jointly rank second-highest, both with projected potential growth of 5.5 per cent per annum,” said Fitch.

It said that the estimate for China represents a significant slowdown from recent historical average growth and reflects both a deteriorating demographic outlook and a slowdown in the rate of capital accumulation as the investment rate has declined.

Broader measures of productivity growth in China have also slowed since the late 2000’s.

Turkey's potential growth rate is also projected to be rapid at 4.8 per cent per annum but this hinges crucially on continued high investment rates, which could be vulnerable to a sustained slowdown in capital inflows, it said.

“India in particular, but also Indonesia, Mexico, Turkey and Brazil are set to see continued robust growth in the working-age population in the next five years, bolstering GDP growth potential. In contrast, in Russia, Poland, China and Korea headwinds from deteriorating demographics will sharpen and weigh on growth,” said Fitch.  

Nevertheless, rising labour force participation rates give some grounds for encouragement as they can be a powerful offset to decelerating working-age population growth.

Fitch said India and, to a lesser extent, Turkey have also seen an impressive rate of capital accumulation per worker, but in the latter's case this has been funded externally, with associated downside risks.