Really India is the second fastest growing economy?

Responding to IMF's scaling down of India's growth rate to 7.9%, finance minister Chidambaram on Wednesday said, "(Even at 7.9%) India will still be the second fastest growing economy in the world."

That, Mr FM, is not quite true. In fact, this is just a frequently repeated myth that is fast acquiring such legitimacy that everyone believes it. Actually, there were 23 countries whose economies grew faster in 2007, with 19 growing at double-digit rates. Even China, with its 11.4% growth ranked only 12th in the list.

The tiny mountain kingdom of Bhutan was ranked second with a growth rate of 22.4% a little behind the 23.4% recorded by oil and gas-rich Azerbaijan. The third country in the list was not from Asia or Latin America but was Angola, in southern Africa. These three were also the only countries in a list of 200 that registered growth of over 20% in their GDP last year. To be fair to the finance minister, most countries in the list of the fastest growing economies are small nations where even a minor economic change can escalate the growth rate.

If one looks at the world's 20 biggest economies, then indeed India has the fastest growth rate, next to China.
One reason behind the high growth rate in Bhutan is the Tala Hydroelectric project. Similarly, Timor-Leste's 19.8% growth can be explained partly by the destruction of economic infrastructure in the unrest period, which lowered the base, and the recent joint petroleum development project with Australia granting 90% revenue to East Timor, which fueled the already small GDP.

Another important factor fueling the growth rate of several countries is the extent to which the export of oil and natural gas contributes to their economy. Countries like Angola, Azerbaijan, East Timor, Qatar, former CIS countries, Venezuela etc, have registered high growth rates because as major oil exporters they gained big time from the spike in international crude oil prices.

Ethiopia registered 11.4% growth, becoming the fastest growing non-oil dependent African nation. Although export of coffee and other agricultural products are helping the economy in earning foreign exchange, in Ethiopia's case too a small base clearly makes it easier to achieve high growth rates.

It is also easy to see why the developed world has relatively low growth rates. Given an already huge base, it takes a lot to achieve high growth. Thus, the GDP of the US, France, Japan, Germany, and Canada all grew at less than 2% per annum.

This explains why the myth about China and India being the world's fastest growing economies is so prevalent. Of the really large economies they are indeed the fastest growing. According to the World Bank nominal GDP list of 2007, China was ranked the fourth largest economy and India the twelfth largest.

Look at the list of the 25 fastest growing economies in the world and you would find that India and China apart, none of the others is anywhere near the top of the list of the world's largest economies. Strange as this may sound, calling India the world's second fastest growing economy may be incorrect, but it is not really misleading.