Assessment of India’s Future Economic Growth Path and the Impact on Commodities Prices

The objective of the study was to shed light on India’s likely growth path over the long-run and the magnitude of risks to the outlook and to that of global commodity markets. Since undertaking pro-market policy reforms in the 1990s, India has enjoyed a boom in economic growth. In recent years, growth rates have consistently been in the range of 6-8%, far surpassing those of many developed nations and most other developing nations. Given the size of India as a country, this fast growth has had a major impact on the global economy and, in particular, has driven a boom in commodity markets in the past decade. Many market observers take India’s fast growth and its impacts on commodity prices as a given, at least in the medium-term.

The Capstone team studied the potential impact using both qualitative as well as quantitative analyses. Reviewing the economic and political history of India over the last five decades they identified India’s key growth drivers, and the threats and opportunities that lie ahead on India’s growth path. We also review the existing world commodity demand by analyzing the growth path and “commodity price-industry mix” dynamics of a few comparable countries so as to arrive at a “commodity price-GDP growth” relationship via regression analysis. The team then project India’s future commodity consumption under different scenarios of India’s potential industry mix.  Finally, comparing the impact of different growth scenarios on selected commodity markets they identified deviations from pre-existing models and estimate the significance of India’s impact on global commodity markets.