What does faster economic growth of nations as a whole means to India and China? It first gets reflected in the commodity prices. Commodities and Stock indices have higher correlations during bull runs. Will India and China suffer the same impact? No! China with its pegged exchanged rate, suffers as the oil and other commodity prices zooms in terms of dollars (QE2 has a good chance of fueling dollar inflation w.r to international commodities). Whereas, the rupee which has a flexible exchange range, appreciates with the QE policy of fed and suffers very less in terms of commodity prices.
What does this means to U.S? Rising prices of commodities driven combined with the devaluation doesn't augur well for the US economy. Sooner or later, this might lead to inflation. The resulting spike in interest rate (there is a limit for the interest rate to be held down by Fed) to protect investment from inflation combined with the high employment might lead to another episode of stagflation. Fed which was already handicapped with exhausting most of its monetary policy tools, may have a tough time going forward!
As far as the competitiveness of these two economies india and china is concerned, india certainly has more advantages than china.China's economy which is basically export driven has to boost up its domestic consumption by mandating higher wages.Here india has an edge for its consumption is domestic demand driven because of its favourable demographic population and affordable labour.
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