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Last Updated: Wednesday, 21 September 2005, 22:54 GMT 23:54 UK
India's economy packs more punch
By Andrew Walker
BBC economics correspondent

Three men sitting under clocks in Mumbai
The question is how long it will take India to push through key changes
The International Monetary Fund has published a forecast for the world economy that predicts growth somewhat slower than last year, but still reasonably robust.

China and the United States are the key forces driving that forecast.

But what about India? It has a very large population - second only to China's.

By one measure it is the world's fourth largest economy and is one of the fastest growing.

Powering up

The IMF's economists think that India is punching below its weight and that the spill-over from a decade of strength is more modest than it could be.

The IMF's assessment of the world economy asks - is India becoming an engine for global growth?

The answer seems to be probably yes, but it is not quite there yet.

The arithmetic tells us India is having an increasing impact on global growth numbers. It accounts for 5.8% of global production now, compared to 4.3% in 1990.

Indian trader sitting in front of his screen and computer
A thriving techology industry is helping drive Indian development

But its influence on the performance of other economies is limited because, the IMF says, it is still an economy that is relatively closed to the outside world. India has attracted a lot of attention for attracting foreign investment such as call centres.

However, its international trade links are weak and it accounts for only 2.5% of global trade in goods and services.

For China the figure is 10.5% and for Hong-Kong, Taiwan, Singapore and South Korea - the so-called newly industrialised Asian economies - it is 9.3%.

Hidden costs
International Trade will never be free and fair
DW, Chicago, USA

One reason is India's trade policy.

Tariffs - which are taxes applied only to imported goods - protect Indian business from foreign competition.

The average size of tariff for India is 22%, more than double the average in Asia's developing countries.

The IMF also says that bureaucracy has hindered the development of the manufacturing industry, which could be a much bigger exporter.

China 9%
Brazil 3.3%
Mexico 3%
Nigeria 3.9%
US 3.5%
Japan 2%
UK 1.9%
Source: IMF

Foreign investment has also been hampered by restrictions. And investment - foreign and home grown - is often discouraged by inadequate transport and telecommunications networks.

But the IMF's chief economist Raghuvan Rajan says the Indian government is taking action.

In a BBC interview, he said they have already brought tariffs down and it is a process that he says will continue.

More important, he said, is to persuade business that bureaucracy and infrastructure are at levels they can live with.

He says the effort is continuing but India is getting more successful at it.

He says that if India follows what he calls reasonable policies, it could become another engine of growth for the world economy.

India cannot match China's influence just yet, but it could do quite soon.

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