India's 7.7% Growth Marred by $2T Exit of Foreign Capital

01, Growth Rate Surpasses China

After India's GDP surpassed that of the United Kingdom, instead of aiming at Germany, it set its sights on China, which is in the second position.

In the first three quarters of this year, India's GDP grew by 7.7%, while China's only grew by 3.0%. After leading for many years, China's economic growth was finally overtaken by India.

Due to India's rapid growth rate, the gap between India and China's GDP is also narrowing.

There is another more important reason, which comes from exchange rates.

Both China and India use their own currencies when calculating GDP, but for comparison, it is a global convention to convert them into US dollars. However, since the beginning of this year, the depreciation of the Chinese yuan against the US dollar has been greater than that of the Indian rupee against the US dollar. Therefore, after conversion into US dollars, India's GDP has gained some advantage, which further narrows the gap with China.

02, The Goal is to Surpass Comprehensively

Since India and China are somewhat similar in many aspects, and India's economic development has also referred to and learned from China's model in recent years, it is not surprising that India takes China as its goal.

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Currently, India's population is gradually approaching that of China, and the demographic dividend brought by the population is similar to what China enjoyed in the past 20 years.

At the same time, India is also continuously building the "Made in India" brand, hoping to replace China as the world's manufacturing hub, and this development model has been proven effective in China.Therefore, India is confident that it can not only learn from China but also do better and even surpass China comprehensively.

03, Difficulties Galore

However, many experts and scholars have expressed certain doubts about whether India can truly catch up with China.

Firstly, in the short term, India's GDP can grow rapidly, which is actually highly related to global high inflation.

The inflation in the United States has just fallen from above 8% to 7%, the inflation in Europe is still maintained at 10%, and India's own inflation is not low either, with the CPI exceeding 7% for three consecutive quarters.

Therefore, India's GDP growth is actually not much different from the price increase. If the inflation factor is deducted, India's GDP growth will drop significantly.

In the medium to long term, India faces a relatively harsh development environment.

When China was continuously building its manufacturing industry, it was facing strong demand from European and American countries, so China's trade development was very rapid after joining the WTO.

But now, India is facing the recession of Western economies such as Europe and America, and the global total demand is continuously shrinking, which also causes India's manufacturing industry to face great difficulties.

04, Capital OutflowMore importantly, the United States' monetary contraction policy has led to a continuous outflow of funds from India, potentially causing a hemorrhage in India's manufacturing sector. Over the past few years, India's manufacturing industry has experienced rapid growth, largely due to the continuous inflow of foreign capital. Now, the outflow of funds will lead to the hollowing out of India's real economy. This has already been reflected in the financial markets. At the end of November, according to official Indian data, more than 2000 billion rupees worth of financial assets have been sold by foreign investors this year, with a large amount of capital withdrawing from the Indian capital market, even more than twice the amount that flowed out during the 2008 subprime crisis.

05. Debt Crisis

Moreover, international rating agencies and exchange rates predict that India's total debt will reach 84% of GDP next year. From 70% in 2020 to the current 84%, this increase has only taken a little over two years. This ratio is already much higher than India's current rating level, so it is not ruled out that the three major rating agencies may further downgrade India's credit rating. This will inevitably lead to higher interest rates on the debt that India currently bears. Coupled with the continuous interest rate hikes by the US dollar, which have raised the global interest rate level, it can be anticipated that India's debt repayment capacity is significantly weakening.

The financial capitalists in the United States are waiting for the arrival of this moment to begin their harvest in India.