Oct. 27 – India will lead the global economy in real GDP growth in 2013, outpacing neighboring China, according to the Rapid Growth Market (RGM) Forecast released on Monday by Ernst & Young (E&Y). The RGM Forecast is the first of its kind, providing insight into the macroeconomic climates of 25 rapidly-developing economies.

According to the report’s predictions, India’s GDP growth will end at 7.2 percent this calendar year, which is 1 percent lower than last year, but it will recover in 2012 where it is expected to reach 8 percent. The forecast then pegs India’s real GDP growth rate to be the highest among all RGMs starting in 2013, when the economy is expected to grow 9.5 percent, followed by China at 9 percent.

“India’s consumption-led economy continues to make the country a highly attractive investment destination in the short to medium term,” says Farokh Balsara, partner and India markets leader at E&Y India. “Its domestic demand-driven growth model has helped the country weather the volatility in the global markets, providing significant growth opportunities to businesses.”

However, E&Y made its positive predictions presuming India will be able to deal with its high inflation.

“While the overall outlook for India is positive, the country will need to address rising inflation which rose to 10.9 percent in August 2011,” the RGM Forecast says. “Provided India’s inflation does start to fall back by the end of the year, and the U.S. and EU economies do not slip back into recession, the ‘soft patch’ for Indian growth should be relatively short-lived. Once inflation is in check, and interest rates are no longer rising, consumers will be more willing to spend, supporting a general improvement in the business environment, with growth steadily accelerating during 2012.”

Despite inflationary pressure, China’s GDP has been growing steadily over the past six months. But influenced by the global recession, the nation’s growth is expected to slow down according to the RGM Forecast. This year, China’s growth is predicted to be 8.8 percent and in 2012 it will slow down to 8.3 percent. Like India, the country’s economy will recover again in 2013 with an estimated 9 percent GDP growth rate.

According to the report, there are a number of reasons for India and China to remain optimistic about their economy for the next decade.

GDP per capita in the two countries remains much lower than in the United States, which actually provides the two nations with catch-up potential. Furthermore, continued industrialization and urbanization, strong population growth, an emerging middle class, high investment and savings rates, political stability and competitiveness will ensure the growth of the two largest markets in the world.

In the rankings of the 25 RGMs over the last 10 years, China came in at No.2 and India at No.4, meaning that the two nations have cemented a strong base for their development in the future.

Even though the Eurozone debt crisis has led to a prolonged recession, China and India will be only moderately affected because of their huge domestic markets, the firm reported in its analysis.

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