LONDON: A secret internal assessment by Britain’s ministry of defence (MoD) has pegged the Indian rupee to be the major reserve currency that will be traded internationally in the next two decades.

The assessment available with TOI says that by 2040, the Rupee will challenge China’s Renminbi as the strongest global currency.

At present however, given the strength of the Chinese economy in the near term, the Renminbi (RMB) will be the most traded global currency, rivalled only by the US dollar out to 2030.

The assessment says that internal welfare demands and a reduction in levels of available capital will lead to a slowdown in the Chinese economy, which will catapult India into overtaking China during this same period.

The MoD’s Development Concepts and Doctrine Centre (DCDC) that has identified key strategic trends that Britain needs to be concerned about over the next 30 years said “RMB and the Rupee will be of greater global significance by 2040.

Both are likely to be traded internationally as reserve currencies assuming that both countries can undertake the necessary economic reforms to make this possible”.

The assessment concludes “It is likely that the Indian economy will rival that of China and the US by 2040. If India can achieve the necessary internal transformations required to sustain this growth it is likely that the Rupee will challenge the Renminbi as the strongest global currency post 2040. To pursue such growth, it is likely that India will value ‘transactional relationships’ over transnational alliances”.

Demographics it says will play a major role in helping India.

China it says is likely to experience an increase in the average age of its population, from an average of 34 in 2011, to 44 in 2040.

“This could lead to China becoming one of the first countries to ‘age before it gets wealthy’.

South Asian countries with younger age profiles and larger family sizes such as India are likely to enjoy the economic benefits of young and productive workforces over the period,” it concludes.

DCDC which draws its staff from all three Services and the Civil Service and are part of Britain’s Joint Forces Command has predicted that despite short term fluctuations, the strength of the US, Chinese and Indian economies are likely to lead to the formation of an unofficial ‘G3’ grouping. Each of these three powers will engage with the others on a host of issues ranging from defence, through to climate change.

DCDC however concludes that within the ‘G3’, the US is likely to increasingly value its relationship with India.

It says “The emerging strength of the Indian economy, allied to the shared languages and culture of large numbers of the Indian diaspora contributing to US technological development will drive this relationship”.

Economically, it says, India will benefit from the increasing strength of its internal markets and its youthful, and economically productive, population.

At present, India has the second largest population in the world (1.2 billion) which will rise to 1.5 billion by 2040 while maintaining ethnic diversity.

“Strong Indo/US ties will endure and their dominance in many global industrial sectors will grow. As the Chinese economy is likely to peak between 2020 and 2030, the Indian economy is also likely to show a high rate of growth.

So, it will increasingly represent a significant area for global investment,” DCDC which maintains a close relationship with the Permanent Joint Headquarters, Britain’s single service warfare centres and the Defence Academy besides routinely working with NATO, the European Union and the United Nations says.

Unlike China, which has configured itself to be an export-based manufacturing economy, Indian economic growth has mostly been based on domestic consumption and the generation of new internal market-based opportunities.

Such characteristics will increase the economic significance of India in the ‘G3’ grouping by 2040 and will make it close to the EU and the US in relative contribution to global GDP from 2030 onwards.

“Assuming that India can overcome the challenges of population growth, political and economic development and the threat of cross-border terrorism, it is likely to be a very significant contributor to the global economy in 2040.

India has a number of cultural, economic and demographic strengths that are likely to contribute to this emergence. First it is likely to sustain both a young and growing population. If it does not address issues of inequality and corruption, India’s young population could represent more of a demographic ‘time bomb’ than a dividend. Second, the high proportion of English speakers in India, and the rapid growth and development of the service-sector, favours the Indian contribution to the global knowledge-based economy. Although China is making significant strides in its language training, the translation burden of the Chinese alphabet and the significant educational challenge of educating its vast population makes it unlikely that China will integrate as easily, or as quickly, into the global knowledge-based economy”.

“Over the next 30 years however, the rise of machine translation, may have considerable impact on this trend. Finally, the Indian market-based economy will not experience the same ‘transformative’ challenges as the Chinese planned economy as it is already configured around the principles of a liberal democracy,” DCDC says.

DCDC further says that in 2040, it is likely that India will have greater global influence, especially in terms of its contribution to international organisations such as the IMF, UN and the G8. As a result, India, due to its economic size and military capabilities, is likely to have gained a permanent seat on the UN Security Council , assuming probable US support.

The DCDC has said that South Asia is a region that is fundamentally important to the world’s development. If present trends continue, it is likely to make the largest contribution to global Gross Domestic Product (GDP) by 2040.4 It will also contain nearly 40% of the world’s population by the same date.

“The dominance of China, possibly succeeded by India, will command particular attention. Over the next 10-20 years, we will need to consider carefully the continuing shift of global power from the West to the East if we and other western allies are to reconfigure our security policies and associated capabilities appropriately,” DCDC recommends.

UK has concluded that the same economic forces that have driven the economic integration of the Chinese and US economies will be felt within the other major global economies, increasing not only the integration of the US economy with China and India, but also directly between China and India.