A new report by Goldman Sachs says that India, which is currently the world's fifth-largest economy, will surpass not only Japan and Germany but also the United States to become the second-largest economy in the world after China by 2075.
The investment bank highlights several factors that will contribute to India's economic growth, including innovation and technology, higher capital investment, and rising worker productivity.
The report emphasizes the importance of infrastructure creation, particularly in the development of roads and railways, which the Indian government has prioritized. In line with this, the country's recent budget includes plans to continue interest-free loan programs to state governments, aiming to stimulate investments in infrastructure.
Goldman Sachs believes that the private sector should capitalize on this favourable environment by scaling up capacity in manufacturing and services, leading to job creation and absorption of the large labour force in the country.
Technology as a driving force
In terms of technology, India's non-governmental trade association, Nasscom, predicts that the country's technology industry revenue will increase by $245 billion by the end of 2023. This growth is expected to come from various sectors, including IT, business process management, and software products.
Capital Management
The report also highlights the potential increase in India's savings rate, driven by falling dependency ratios, rising incomes, and deeper development in the financial sector. This will provide a substantial pool of capital for further investments, supporting economic growth.
Where India lacks
However, the report mentions some risks to India's economic growth. One key concern is the declining labour force participation rate, particularly among women. The report stresses the importance of creating more opportunities for women and increasing their participation in the labour force to boost overall growth.
Additionally, India's current account deficit, due to net exports being a drag on growth, poses a challenge. Nevertheless, services exports have been cushioning the current account balances, and the country's economy is primarily driven by domestic demand, with up to 60% of growth attributed to domestic consumption and investments.
It is worth noting that other global rating agencies, such as S&P Global and Morgan Stanley, have also predicted that India is on track to become the third-largest economy by 2030.
Goldman Sachs' report concludes that India's transition to green energy also presents a significant investment opportunity, with the government aiming to achieve net zero emissions by 2070 and a substantial portion of power generation coming from non-fossil sources by 2030.