FUTURE OF INDIA

 

India is poised to become the world’s second-largest economy by 2075, leapfrogging not just Japan and Germany, but the U.S., too, says Goldman Sachs.

Currently, India is the world’s fifth-largest economy, behind Germany, Japan, China and the U.S.

On top of a burgeoning population, driving the forecast is the country’s progress in innovation and technology, higher capital investment, and rising worker productivity, the investment bank wrote in a recent report.

“Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies,” said Goldman Sachs Research’s India economist, Santanu Sengupta.

A country’s dependency ratio is measured by the number of dependents against the total working-age population. A low dependency ratio indicates that there are proportionally more working-age adults who are able to support the youth and elderly.

GDP projections by 2075 ($ trillion)

China

57

India

52.5

U.S.

51.5

Euro Area

30.3

Japan

7.5

Source: Goldman Sachs Research  Created with Datawrapper

Sengupta added that the key to drawing out the potential of India’s rapidly growing population is to boost the participation of its labor force. And Sengupta forecasts that India will have one of the lowest dependency ratios among large 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 believes 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.

India’s technology industry revenue is expected to increase by $245 billion by the end of 2023, according to Nasscom, India’s nongovernmental trade association. That growth will come from across the IT, business process management and software product streams, Nasscom’s report indicated.

Workers at the surface mount technology workshop inside the Realme factory in Greater Noida, India, on Wednesday, June 1, 2022. Chinas Realme closing in on market leaders Xiaomi, Samsung, yet hurdles loom in treacherous market where many stumbled. Photographer: Anindito Mukerjee/Bloomberg via Getty Images

Additionally, Goldman predicted capital investment will be another significant 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.