Virendra Pandit
New Delhi: It is the ‘India Moment’ all over. In fact, the South Asian country is in a defining moment to realize its ambition to become an economic superpower in the next decade, fresh reports have indicated.
In its latest report, “Look Forward: India’s Moment,”, the US-based financial information and analytics company S&P Global projected the Indian economy’s growth by an average of 6.7 percent until 2031, and its GDP to nearly treble to USD 6.7 trillion, amid short-term challenges, the media reported.
If this is realized, India would overtake Japan and China to become the third-largest economy in the world.
India has come out of the pandemic reasonably well, with a GDP growth of 7.2 percent in the fiscal year 2022-23. “We expect India to grow 6.7 percent per year from fiscal 2024 to fiscal 2031, catapulting GDP to USD 6.7 trillion from USD 3.4 trillion in fiscal 2023,” the report said.
This growth will be driven by manufacturing and services exports and consumer demand, despite short-term challenges from rate hikes and a global slowdown.
S&P retained its earlier forecast of 6 percent growth for 2023-24. Even at this rate, India will be the fastest-growing economy in the G-20 group which it heads currently.
In July, the International Monetary Fund (IMF) raised its growth forecast for India by 0.2 percentage points to 6.1 percent for 2023-24, while the Reserve Bank of India (RBI) forecast a 6.5 percent rise.
“While the world is in the midst of an unprecedented period of transition and uncertainty, India faces a defining opportunity to capitalize on this moment,” it said.
S&P expected the size of the Indian economy to grow from USD 3.4 trillion in 2023 to USD 6.7 trillion in 2031 with a per capita GDP rise to about USD 4,500.
In manufacturing, new opportunities may likely emerge from an accelerating global trend toward supply chain diversification as the government offered incentives to manufacturers and improved infrastructure.
The economy is set to benefit from efficiency gains from tax reforms, state support to digital and physical infrastructure, and reducing leakages from government subsidy transfers.
The report said India’s consumer market will more than double, surging from 2.3 trillion in 2022 to USD 5.2 trillion by 2031, driven by rising household incomes and higher spending on food and other items.
“Higher per capita incomes will also likely boost discretionary spending in areas such as entertainment, communications, restaurants, and hotels,” said the report.
S&P Global said developing a strong logistics framework will be key in transforming India from a services-dominated economy to a manufacturing-dominant one, besides increasing female participation in the workforce to realize a demographic dividend.
“India’s ability to become a major global manufacturing hub will be a paramount test for its economic future.”
Expressing confidence in the medium-term growth potential of the Indian economy, S&P Global projected this growth with capital accumulation as the main driver of this growth.
Last week, Standard Chartered Bank also said the Indian economy would nearly double to USD 6 trillion by the end of FY30, which would be fuelled by external trade and household consumption, with per capita income soaring by nearly 70 percent from USD 2,450 to USD 4,000 in that period.
Despite the possibility of a slowdown to 6 percent in FY24 because of a global slowdown and the delayed effects of policy rate increases by the central bank, the S&P report maintained that India would remain the fastest-growing economy among the G-20 countries.
“Capital accumulation will be the main driver of Indian growth. The government has substantially stimulated investment by supporting infrastructure projects and incentivizing manufacturing. We foresee the Indian private sector gradually increasing investments, bolstered by robust corporate balance sheets.”
Meanwhile, V. Anantha Nageswaran, Chief Economic Advisor to the Government of India, emphasized the importance of the manufacturing sector and the need for a shift to high-value-added services, which would be essential to sustain a growth rate of 7-7.5 percent until 2030. India’s comparative advantages, including skilled labor, improved physical infrastructure, a well-established industrial ecosystem, and a large domestic market, would drive this growth.
“The Indian economy, in real terms, needs to grow annually at 7-7.5 percent until 2030. The share of manufacturing in total gross value added must rise from 16 percent to at least 25 percent of GDP, displacing agriculture and low-value-added services. The composition of services should also pivot towards high-value-added services, attracting foreign demand and improving earnings.”
However, the S&P report cautioned that success would depend on India’s ability to harness its demographic dividend and increase labor force participation, including skilling, and underlined the necessity for structural reforms in land, logistics, and labor to boost private investment and increase competitiveness driven by foreign direct investment.
“India’s short-term economic growth will be underpinned by its 678.6 million strong labor force,” the report added, underlining that enticing more women into the labor force, of which only 24 percent participated in 2022, would be critical for future growth.