Goldman Sachs sees India’s economy becoming the world’s second-largest by 2075, with a projected GDP of $52 tn.
The global banking giant issued a report in which it says India’s rise to global economic prominence will be driven by a burgeoning population, currently estimated to be 1.4 bn, along with innovations and technology advancements, capital investments and rising worker productivity.
Presently, India is the world’s fifth-largest economy, behind China, US, Japan and Germany.
According to the investment bank, the key to leveraging India’s growing population is boosting its workforce by enhancing labor participation. It also suggests providing training and skills for its immense pool of talent.
Santanu Sengupta, Goldman Sachs Research’s India economist says India has one of the world’s best ratios between its working-age population vis-à-vis the number of children and the elderly. “So that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services and the growth of infrastructure,” he added.
Read: India now world’s fifth largest economy, overtakes UK
Other key factors
While India has demographics on its side, there are other factors that will drive the trajectory of India’s economy.
“Capital investment is also going to be a significant driver of growth going forward. Driven by favorable demographics, India’s savings rate is likely to increase with falling dependency ratios, rising incomes, and deeper financial sector development. This is likely to make the pool of capital available to drive further investment,” Sengupta continued.
In addition, Sengupta says India is undertaking massive infrastructure projects which will significantly impact its economic growth moving forward.
Among India’s ambitious infrastructure initiatives include the Chenab Bridge. It will be one of the tallest arch railway bridges in the world once completed.
“We believe this is also the appropriate time for the private sector to scale up on creating capacities in both manufacturing and services which has the potential of creating jobs and absorbing the large labor force,” Sengupta continued.
Technology will also play a key role in India’s economic rise in the next few decades. Investments in IT, business process management and software product streams will help India generate incomes that will further contribute to its growing GDP. By end of this year alone, it is expected to generate $245 bn in revenues from its tech sector.
Threats to India’s economy
As India’s labor force is a critical pillar of its projected future growth, Goldman Sachs says the main impediment would be if the labor force participation rate does not increase. Sengupta said, “The labor force participation rate in India has declined over the last 15 years. If you have more opportunities — especially for women, because the women’s labor force participation rate is significantly lower than men’s — you can shore up your labor force participation rate, which can further increase your potential growth.”
Over the short term, The World Bank says India’s growth will be hampered by rising borrowing costs, tightening financial conditions and ongoing inflationary pressures. India’s overall growth momentum, however, remains robust.
Sustainability ambitions
Another opportunity on the horizon for India’s economy is its green energy transition. India has announced plans to reach net zero emissions by 2070. It also aims to produce 50 percent of its power generation capacity from non-fossil sources by 2030. The government is also pushing EVs and green hydrogen, targeting 500GW of renewable energy capacity by 2030.
Goldman Sachs says transitioning to green energy is a large investment opportunity for India. “It will take time. In the interim fossil fuels are going to be the majority share in energy needs until India transitions to green energy,” ended Sengupta.
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