A research note released by S&P Global on Thursday forecasts India to grow 6.7% per year between FY24 and FY31, catapulting the country's GDP from $3.4 trillion in FY23 to $6.7 trillion.
A research note by Morgan Stanley last year estimated that India's GDP could more than double from $3.5 trillion today to surpass $7.5 trillion by 2031. Its share of global exports could also double over the period, while the Bombay Stock Exchange could deliver 11% annual growth, reaching a market capitalisation of $10 trillion in the coming decade.
Goldman Sachs Research recently forecast India to have the world's second-largest economy by 2075. The IMF also expects India to overtake Germany and Japan to become the third largest economy by FY28.
So far, amid a weak global outlook, economic growth in India remains resilient. The Reserve Bank of India projects GDP growth for FY24 at 6.5%—the highest growth rate among major global economies.
The higher Rabi crop production in FY23, the expected normal monsoon, and sustained buoyancy in services should support private consumption and overall economic activity in the current year, the Monetary Policy Committee said in its last resolution in June.
The government's thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity, it said.
"The trillion-dollar question is whether India can sustain high growth," S&P Global's note said.
The macro challenge for India in the upcoming decade is to turn traditionally uneven growth into a high and stable trend. Given structural differences with East Asian economies, India will need to follow its own unique path.Look Forward: India's Moment, S&P Global
The challenge over the next decade—and beyond—will be to create the conditions for sustained growth, the note said.
Achieving this will likely require structural reforms in three key areas:
Raise labour participation, especially among women, and boost skills.
Lift private investment in manufacturing.
Bolster external competitiveness through FDI.
India has become an increasingly attractive location for multinationals across a range of industries. Gross foreign direct investment inflows reached a record $84.8 billion in fiscal 2022, according to the Ministry of Commerce and Industry. Private investments in manufacturing, too, are showing an uptick. India, like a growing number of economies, is using an interventionist industrial policy to attract manufacturing investment, the note said.
However, India is failing to take full advantage of its large and growing working age population, the note by S&P Global said. Upskilling workers and increasing the number of people holding jobs will boost growth, it added.
Labour force participation was just 55.2% in 2022, and only about 32.8% among women, according to the government's Periodic Labour Force Survey. Some of the attempts being made to deregulate labour markets at the state level could also improve participation and efficiency.
Santanu Sengupta, India economist at Goldman Sachs Research, said that the main downside risk would be if the labour force participation rate does not increase. The labour force participation rate in India has declined over the last 15 years, he said.
"If you have more opportunities—especially for women, because the women's labour force participation rate is significantly lower than men's—you can shore up your labour force participation rate, which can further increase your potential growth," he said.
Growth upside can also come through higher productivity growth, Sengupta said.
Another possible risk could be global, Dharma Kirti Joshi, chief economist at Crisil said. Geopolitics is very unpredictable and that could slow down our growth, he explained. On the domestic side, India must also take advantage of supply chain diversification. "So, whether India will achieve this or not will be a conditional yes," Joshi said.
NR Bhanumurthy, vice-chancellor of Dr BR Ambedkar School of Economics University said that major domestic risk for India's potential growth is at the state-level. Many states are seeing a deterioration of macro and fiscal conditions. Post-Covid, state recovery has been uneven, both in terms of growth and fiscal conditions, Bhanumurthy said. Now, states are getting into a place of fiscal issues and public debt is increasing at a much faster pace, making recovery difficult.
Success will depend on India's ability to reap its demographic dividend; increase labour force participation, including upskilling; boost private investment, with structural reforms in land, logistics and labour; and increase competitiveness driven by foreign direct investment, the note by S&P Global said.
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