- Goldman Sachs predicts that by 2075 India will be the second largest economy in the world.
- In addition to a growing population, the country’s advances in innovation and technology, higher capital investment and rising labor productivity are the driving factors for the forecast.
India’s Taj Mahal at sunrise.
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According to Goldman Sachs, India is poised to become the second largest economy in the world by 2075, overtaking not only Japan and Germany but also the US.
India is currently the fifth largest economy in the world, behind Germany, Japan, China and the USA
In addition to a growing population, the country’s advances in innovation and technology, higher capital investment and rising labor productivity are driving factors behind the forecast, the investment bank wrote in a recent report.
“Over the next two decades, India’s dependency ratio will be one of the lowest among the regional economies,” said Santanu Sengupta, India economist at Goldman Sachs Research.
A country’s dependency ratio is measured as the number of dependent persons in relation to the total working-age population. A low dependency ratio indicates that there are proportionately more adults of working age who are able to support young people and the elderly.
Sengupta added that the key to realizing the potential of India’s rapidly growing population lies in increasing labor force participation. And Sengupta predicts that India will have one of the lowest dependency ratios of any major economy over the next 20 years.
“So this is really the window for India to get it right in terms of building manufacturing capacity, further expanding services and further growing infrastructure,” he said.
The Indian government has prioritized the creation of infrastructure, especially in the construction of roads and railways. The country’s latest budget aims to continue 50-year interest-free loan programs for state governments to boost infrastructure investment.
Goldman Sachs believes this is the right time for the private sector to build more manufacturing and service capacity to create more jobs and absorb the large workforce.
Advances in technology and innovation are also at the forefront of India’s economic development, according to the investment bank.
According to Nasscom, India’s non-governmental trade association, India’s tech industry revenue is expected to grow by $245 billion by the end of 2023. That growth will come from IT, business process management and software product streams, Nasscom’s report said.
Employees at work in the Realme factory in Greater Noida, India.
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Additionally, Goldman predicted that capital investment will be another key driver of India’s growth.
“India’s savings rate is likely to increase with falling dependency ratios, rising incomes and stronger financial sector development, likely making the capital pool available for further investment,” Goldman said in the report.
The Achilles’ heel of the bank’s forecast is the labor force participation rate — and whether it’s rising at the rate Goldman predicts.
“India’s labor force participation rate has declined over the past 15 years,” the report says, noting that women’s labor force participation rates are “significantly lower” than men’s.
“Only 20% of all working-age women in India are employed,” the investment bank wrote in a separate report in June, noting that the low number may be due to women doing mostly piecework, which is not accounted for by economics Measures of formal employment.
Indian women at work in a brick kiln in the northeastern state of Nagaland.
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Net exports also weighed on India’s growth as India runs a current account deficit, Goldman said. However, the bank emphasized that exports of services have cushioned current account balances.
India’s economy, unlike many more export-dependent economies in the region, is driven by domestic demand, with up to 60% of growth coming primarily from domestic consumption and investment, according to Goldman’s report.
S&P Global and Morgan Stanley also forecast that India is on track to become the world’s third largest economy by 2030.
India’s GDP grew 6.1% year-on-year in the first quarter, well beating Reuters’ 5% growth expectation. The country’s overall growth is estimated at 7.2%, compared to a 9.1% growth in FY2021-2022.
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