India is set to become the fastest growing major economy in the world by 2012 and the third largest by GDP-size in the next two decades, behind China and the USA, a global study by British banking giant Standard Chartered said.

"India would have overtaken Japan and will be trailing the US by a slim margin by 2030. China would be at a comfortable number one position," StanChart's Head of India Research, Samiran Chakraborty said, citing the findings of the 'Super-Cycle Report' in Mumbai on Monday.

The country's contribution to global GDP will go up to 10 per cent of the total pie of approximately $600 trillion, while China's will be 24 per cent, he added.

StanChart expects the country to grow at an annual rate of 9.3 per cent for the next two decades and the per capita income of Indians will shoot up to $7,000 by 2030 from the current $1,000, he added.

The world is currently growing through the third super cycle -- a period of sustained high economic growth driven by a particular country -- which will go till 2030, and India and China will be the biggest beneficiaries from the current cycle, Chakraborty said.

The previous two super cycles were 1870-1913 (led by the US) and 1946-1973 (led by Japan).

For India, the biggest positive would be the conducive demographics and the country will continue to grow on the domestic demand front rather than being an export hub like some of its Asian peers, Chakraborty said.

The biggest risks for the expectations to not come true, are a collapse of China, confirming to theories of its growth being a bubble; the US going into a 10-year moratorium like Japan and protectionism gaining currency, he said.

David Fuller's view I saw a brief discussion of the Standard Chartered report while in the home gym this morning. The authors cited some very important statistics which should give western doom, gloom and depression advocates pause for thought.

According to their economists, global GDP has doubled in size over the last decade. Also, some readers may not know that global GDP is larger today than it was just before the financial crisis of 2007-2008. So-called developing nations now account for nearly two-thirds of GDP. Standard Chartered also expect global GDP to double again over the next decade.

To download The Super-Cycle Report (145 pages) from Standard Chartered, click on this link to their Press Release, then scroll down to their 'Download for The Super-Cycle Report' link and click on it to read now or to save it on your computer.


Here is a portion of the Press Release:

Supercycle defined

The report defines a super-cycle as "a period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanisation and technological innovation and characterised by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world." The world has seen two such super-cycles before. The first ran from 1870 until 1913, the eve of the First World War. The second began with the end of the Second World War and lasted until the oil crisis in 1973. The current super-cycle started at the turn of the 21st century and is likely to extend until at least 2030. It will unlock the growth potential in emerging markets, especially across the populous economies of India, China, Indonesia, the Middle East, Africa and Latin America. Hundreds of millions of people are likely to enter the global workforce, driving urbanisation, high rates of investment and technological innovation. While earlier super-cycles were driven by the comparatively small populations in the West, the current super-cycle will involve 85 per cent of the world population.

Implications for financial assets

Financial markets have not fully factored in either the scale or the profound changes that will likely take place, the report concludes. This provides plenty of opportunities across all asset classes for investors and companies. For long-term investors, the super-cycle points to greater allocation of capital into equities, especially those benefitting from the strong growth in the emerging markets, rapid urbanisation and the growing middle classes. Equities, commodities and real estate investments are also likely to do better than fixed income assets.

Dr. Gerard Lyons, Chief Economist and Group Head of Global Research, commented: "The concept of a super-cycle builds on a major theme that we have talked about for many years, namely: a New World Order, a phrase that has become more widely used. Our view of the New World Order was that it reflected the shift in the balance of economic and financial power from the West to the East. A super-cycle builds on this concept, reflecting both the potential upside in terms of strong global growth as well as the fact that, whilst emerging economies will be the main drivers of growth, the West, too, has the ability to benefit from the changing global economy by adapting and changing."

Veteran subscribers will be very familiar with this outlook which Fullermoney has advocated since 2003. It is the driver of our secular investment themes. While we are naturally wary of consensus, it is reassuring to see the knowledgeable team at Standard Chartered flesh out our similar views with their numbers and projections. The earlier examples of GDP super-cycles are also helpful.

India and China certainly have the potential to lead the realisation of these bullish forecasts, subject to two crucial factors, the first of which individual countries control, the second which they do not control.

1. Economic governance will remain the key factor within the control of individual countries. Standards of economic governance are seldom constant and usually vary over the longer term. However, more than ever before today's leaders have the advantage of being able to stand on the shoulders of their predecessors, metaphorically speaking, so there are fewer mysteries as to what works and what does not work in terms of governance. Historically and also recently there has been more than one model for successful governance. China's command economy has been highly efficient and India's sprawling democracy surprisingly successful over the last decade. Inevitably, both systems have their flaws and detractors. However, they both have what is certainly one of the best motivators of improvement - needs must.

2. Significant exogenous events would be largely outside the control of any government. For instance, dramatic climate change, a crippling energy shortage or a catastrophic terrorist/military conflict could seriously disrupt the GDP Super-Cycle forecast by Standard Chartered. These are ongoing risks, hopefully avoided or limited to containable problems for which solutions can be found.

At Fullermoney, we remain more optimistic than fearful about the future, and hopefully realistically so.

There will never be a shortage of opinions or forecasts in our business. Many of them are of limited value, not surprisingly. While I have yet to read all of this Standard Chartered report, I have seen enough to conclude that it is very good - one to absorb now and keep as a reference work for the next many years, at least until it is either updated or superseded by something else.