India can accelerate its path to becoming the world’s second largest economy by 2031 by boosting gross domestic product (GDP) growth in purchasing power parity terms to 11% over the next decade, beating the Economic Organization’s estimate, said the deputy governor of the Reserve Bank of India (RBI), Michael Patra, on Saturday.
According to OECD calculations, India is poised to overtake the US economy by 2048, making India the largest economy in the world after China. The Indian economy grew by 8.7% through FY22 and the RBI forecasts GDP growth of 7.2% in FY23.
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“You can imagine India entering the next decade with a growth rate of 11%. If this is achieved, India will not become the second largest economy in the world by 2048 as previously shown, but by 2031,” Patra said at an event organized by RBI. “Even if it doesn’t keep up this pace and slows down to 4-5% in 2040-50, it will become the world’s largest economy by 2060,” he added.
To reach this milestone, India needs to focus on four growth drivers, which Patra says include demographic dividend, manufacturing, export and internationalization of the rupee. To reach the target of 10% growth in the manufacturing sector, India needs to be part of Industrial Revolution 4.0, which includes automation, data sharing, cyber-physical systems, cloud computing and advanced robotics. In addition, India needs to develop a skilled workforce and increase its international competitiveness, Patra said.
If the 10 percent growth target for the manufacturing sector is met, its share of GDP will rise to 25 percent, Patra said, adding that the country still has a lot of catching up to do in this area.
While India faces an infrastructure gap due to lower investment in this sector, the share of infrastructure investment should rise to 6% of GDP by 2030, compared to 4.6% currently, to fill the gap, Patra said.
India should also focus on improving its labor market as it will become the world’s most populous country by 2023 and have a growing working-age population by 2045, he said. However, the contribution of labor to GDP growth remains lower than in both developed and emerging economies, as 83% of India’s workforce is employed in the non-organized sector. Patra said if the target of $1 trillion worth of exports is met by 2030, the share of Indian exports will increase to 5% from the current 2.7%.
Among the non-systemic problems facing the Indian economy, Patra ranked the pandemic as the top priority, which has caused not only fatalities but also lost production. It can take several years to recover that lost performance, he said.
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