According to Goldman Sachs, India has a good chance of becoming the second largest economy in the world by 2075. India is currently the fifth-largest economy in the world, following Germany, Japan, China, and the United States.
The investment bank wrote in a recent report that the country’s progress in innovation and technology, higher capital investment, and rising worker productivity are driving the forecast.
Santanu Sengupta, an India economist at Goldman Sachs Research, predicted that India’s dependency ratio would be one of the lowest among regional economies “over the next two decades.”
The ratio of a country’s dependents to its working-age population is known as the dependency ratio. A low reliance proportion shows that there are relatively seriously working age grown-ups who can uphold the young and older.
In order to maximize the potential of India’s rapidly expanding population, work force participation must be increased. Sengupta estimates that India will have one of the least reliance proportions among huge economies for the next 20 years.
“So that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services, continuing the growth of infrastructure,” he said.
India’s government has placed a priority on infrastructure creation, especially in the setting up of roads and railways. The country’s recent budget aims to continue the 50-year interest free loan programs to state governments in order to spur investments in infrastructure.
Goldman Sachs reckon that this is an appropriate time for the private sector to scale up on creating capacity in manufacturing and services in order to generate more jobs and absorb the large labor force.
The investment bank stated that India’s advancement in technology and innovation is also a driving force behind its economic trajectory.
India’s technology industry income is supposed to go up by $245 billion at the end of 2023, as indicated by Nasscom, India’s non-governmental trade association. That development will come from across the IT, business process the board and programming item streams.
Furthermore, Goldman anticipated capital investment will be one more huge driver of India’s growth.
“India’s savings rate is likely to increase with falling dependency ratios, rising incomes, and deeper financial sector development, which is likely to make the pool of capital available to drive further investment,” Goldman’s report stated.
Meanwhile, a report has revealed that India’s labor force participation rate has decreased over the past 15 years, highlighting the “significantly lower” labor force participation rate of women compared to men.
The investment bank reported in a separate report in June 2023 that “a mere 20% of all working-age women in India are in employment.” The report cited the possibility that the low figure was caused by women primarily engaging in piecework, which is not included in the economic measures of formal employment.
Net exports have also been a drag on India’s growth, because India runs a current account deficit, Goldman said. The bank highlighted, however, that services exports have been cushioning current account balances.
India’s economy is driven by domestic demand, unlike many more export-dependent economies in the region, with up to 60% of its growth mainly attributed to domestic consumption and investments, according to Goldman’s report.
S&P Global and Morgan Stanley have also predicted that India is on course to become the third-largest economy by 2030.
India’s first-quarter GDP expanded 6.1% year-on-year, handily beating Reuters’ expectations of 5% growth. The country’s full-year growth is estimated to come in at 7.2%, compared with 9.1% growth in the 2021-2022 fiscal year.