TIMESASIANews.com | India is predicted to become the third largest economic power in the world by 2030, following the two superpowers, namely the United States (US) and China.
The projection was disclosed by S&P Global and Morgan Stanley, in which S&P refers to gross domestic product (GDP) growth which will reach an average of 6.3% until 2030. Meanwhile, Morgan Stanley estimates that India’s GDP is likely to increase more than double by 2031 .
Thus, India will surpass countries with other largest economies, such as Japan, Germany and the UK.
*India has the conditions for an economic boom driven by offshoring, investment in manufacturing, energy transition, and a developed digital infrastructure of the country,” wrote Morgan Stanley analysts led by Ridham Desai and Girish Acchipalia in the report, quoted by CNBC International, Thursday (2022/12/1).
“This driver will make [India’s] economy and stock market the third largest in the world before the end of the decade,” he added.
India posted annual GDP growth yoy (year-on-year) of 6.3% in the third quarter of 2022, slightly higher than the Reuters poll’s estimate of 6.2%. Previously, India recorded growth of 13.5% yoy in the second quarter of 2022, supported by strong domestic demand in the country’s services sector.
Meanwhile, the S&P projections depend on the continuation of India’s trade and financial liberalization, labor market reforms, and investment in infrastructure and human resources in India.
“This is a reasonable expectation from India, which has a lot to catch up with in terms of economic growth and per capita income,” Dhiraj Nim, economist at Australia and New Zealand Banking Group Research told CNBC.
Nim continued, several of the reforms mentioned have been implemented, highlighting the government’s commitment to set aside more capital spending in the country’s annual budget.
Manufacturing Center
According to S&P, there is clear concern from the Indian government to become a sub for foreign investors as well as a driving force for the manufacturing sector, and their main vehicle for doing so is through the Production-Related Incentives Scheme (PLIS).
The so-called PLIS, which was introduced in 2020, offers incentives to domestic and foreign investors in the form of tax breaks and permits, among other stimuli.
“It is very likely the government is relying on PLIS as a tool to make India’s economy more export-driven and more interconnected in global supply chains,” wrote S&P analysts.
Similarly, Morgan Stanley predicts that India’s manufacturing share of GDP will rise from 15.6% of GDP today to 21% by 2031, implying that manufacturing revenue could triple from its current US$447 billion to around US$ 1.49 trillion.
“Multinational companies are more optimistic than ever about investing in India… and the government is encouraging investment by building infrastructure and providing land for factories,” said Morgan Stanley.
“India’s advantages [include] an abundant low-cost workforce, low manufacturing costs, openness to investment, business-friendly policies, and a young demographic with strong consumption propensities,” said Sumedha Dasgupta, senior analyst with the Economist Intelligence Unit.
These factors make India an attractive option for setting up a manufacturing hub towards the end of the decade, he said.
Risk Factors
Just like other projections, Morgan Stanley said there are risk factors, including a prolonged global recession. This is because India is a highly trade-dependent economy with almost 20% of its domestic production being exported.
Other risk factors cited by the US investment bank include the supply of skilled labour, adverse geopolitical events and policy errors that may result from voting in a “weaker government”.
Meanwhile, India’s Ministry of Finance previously said the global slowdown could reduce the prospects for India’s export business.
Meanwhile, even though India’s GDP in aggregate is already above pre-Covid-19 levels, growth going forward is predicted to be much weaker compared to the previous quarter.
“Real GDP is now 8% above pre-Covid levels in terms of growth rates, but on the outlook, there are headwinds from the global side of financial conditions,” said Sonal Varma, chief economist at Nomura. (**)
