India is projected to emerge as the second-largest global economy by 2075, surpassing not only Japan and Germany but also the United States, according to a recent report by Goldman Sachs. Currently ranked as the world’s fifth-largest economy, India’s potential ascent is driven by several factors outlined in the investment bank’s study, including a growing population, advancements in technology and innovation, increased capital investment, and rising worker productivity.
Goldman Sachs Research’s India economist, Santanu Sengupta, emphasized that India’s dependency ratio, which measures the number of dependents against the working-age population, is expected to be one of the lowest among regional economies over the next two decades. This ratio indicates a higher proportion of working-age adults capable of supporting the youth and elderly populations.
To unlock the potential of its expanding population, Sengupta stressed the importance of boosting labor force participation. India aims to achieve this through initiatives such as enhancing manufacturing capacity, fostering service sector growth, and investing in infrastructure development. The government has prioritized infrastructure creation, particularly in road and railway networks, as highlighted in the recent budget, which includes continued interest-free loan programs to state governments to drive infrastructure investments.
Goldman Sachs believes that the current period presents a suitable opportunity for the private sector to scale up manufacturing and service capacity, creating more job opportunities and absorbing the large labor force.
The investment bank also recognized India’s progress in technology and innovation as a key driver of its economic trajectory. According to Nasscom, a non-governmental trade association in India, growth in the IT, business process management, and software product sectors will increase the country’s technology industry’s revenue by $245 billion by the end of 2023.
Goldman Sachs further predicted that India’s savings rate would rise due to falling dependency ratios, increasing incomes, and deeper financial sector development. This would provide a substantial pool of capital for further investment and drive economic growth.
However, the bank’s projections are contingent on the labor force participation rate increasing as anticipated. The report noted that India has witnessed a decline in labor force participation over the past 15 years, particularly among women, with only 20% of working-age women in employment. The report highlighted the need to address this gender disparity and ensure that women’s participation in the labor force increases.
India’s current account deficit, partly attributable to net exports, has been a hindrance to economic growth, according to Goldman Sachs. However, the bank emphasized that service exports have mitigated the impact on the country’s current account balance.
Goldman Sachs’ optimistic forecast aligns with predictions made by S&P Global and Morgan Stanley, both of which also anticipate India becoming the world’s third-largest economy by 2030.
India’s GDP expanded by 6.1% year-on-year in the first quarter, surpassing expectations, and the country is estimated to achieve a full-year growth rate of 7.2% for the fiscal year 2022-2023, compared to 9.1% growth in the previous fiscal year.