India's sustained GDP growth rally will produce an average 6.5% economic growth rate from 2024 to 2028, thereby outshining Japan and Germany to become the world's third-largest economy by 2032, the UK-based economic consultancy Centre for Economics and Business Research (CEBR) says in its latest World Economic League Table report.
The key drivers behind India's rise on the global GDP table include India's large and youthful population, a growing middle class, a dynamic entrepreneurial sector, and increasing global economic integration.
The organisation's multi-decade projections and demographic estimates show India growing as the most formidable economic superpower, overtaking the likes of China and the US after 2080.
China's time at the top is likely to be "limited", with the US expected to have a 45% larger GDP than China’s by 2100. On the other hand, India's rise in economic growth will continue throughout the century. After emerging as the third biggest economy, it'll eventually become the largest economic superpower.
"(India) is anticipated to have a GDP 90% larger than China’s and 30% larger than that of the US by the end of the century," says the CEBR report.
The upcoming year also holds significance for the country, which will hold the general elections next year. The event is expected to shape the nation's political trajectory for the next five years.
"The election outcomes will significantly impact India's domestic and foreign policy, as well as its relations with neighbouring countries and major global powers.”
As India continues its growth momentum, it'll be interesting to see how China amends its ways to sustain its place in the economic table. "These conclusions raise questions about China’s strategic response, as it faces the possibility of being, at best, one of three superpowers and potentially the "junior partner"." the report says.
With regards to 2023, CEBR says that as a lower-middle-income nation, India reported an estimated PPP-adjusted GDP per capita of $9,183 in 2023. Following a robust GDP growth of 7.2% in fiscal year 2022/23, it expects a slight moderation at 6.4% in FY 2023-24, resulting in output surpassing pre-pandemic levels by 17.2%.
There are two critical factors hampering growth in FY24: global demand moderation and the Reserve Bank of India's (RBI) proactive tightening of monetary policy to curb inflationary pressures.
On the inflation front, 2023 is projected to close at 5.5%, primarily driven by food and energy price shocks. While this growth in consumer prices is below the 10-year average inflation rate (5.8% from 2011 to 2021), it remains within the RBI's tolerance range of 4% ± 2%.
Notably, the RBI has increased rates by a cumulative 250 basis points since May 2022, reaching 6.5% by February 2023.
In terms of economic constraints, public sector debt poses the highest challenge. In 2023, government debt as a percentage of GDP is expected to reach 81.9%, exceeding the 81% recorded in 2022. Government borrowing is estimated at 8.8% of GDP in 2023, reflecting an expansionary stance with increased spending on infrastructure, healthcare, and social welfare.
Notwithstanding tough global conditions, the government has undertaken reforms to stimulate private investment like easing foreign direct investment norms, state-owned enterprise privatisation efforts, and tax regime simplification. Overall, these are expected to enhance the business climate and productivity in the long run.
Among other challenges facing India are poverty, inequality, the need for human capital and infrastructure improvement, and environmental sustainability.
