India’s Taj Mahal At Sunrise.
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According to Goldman Sachs, India is set to surpass Japan, Germany, and even the United States to become the world’s second-largest economy by 2075. Currently, India holds the fifth spot behind Germany, Japan, China, and the U.S.
This projection is based on India’s flourishing population, advancements in innovation and technology, increased capital investment, and rising worker productivity, as outlined in a recent report by the investment bank.
Goldman Sachs Research’s India economist, Santanu Sengupta, explained, “Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies.” The dependency ratio measures dependents against the working-age population, and a low ratio indicates a larger proportion of working-age adults capable of supporting the young and elderly.
Sengupta emphasized that India must focus on maximizing the potential of its rapidly growing population by boosting labor force participation. He predicted that India will maintain one of the lowest dependency ratios among major economies for the next two decades.
“This is India’s window of opportunity to establish manufacturing capacity, promote continued growth in services, and expand infrastructure,” Sengupta stated.
The Indian government has prioritized infrastructure development, particularly in the creation of roads and railways. The recent budget includes initiatives to provide interest-free loans to state governments, encouraging investments in infrastructure.
Goldman Sachs believes this is the right time for the private sector to increase investment in manufacturing and services to generate more jobs and accommodate the large labor force.
The progress in technology and innovation is also driving India’s economic trajectory, according to Goldman Sachs. Nasscom, India’s trade association, projects a $245 billion increase in India’s technology industry revenue by 2023. This growth will come from various sectors, including IT, business process management, and software products.
Employees at work inside the Realme factory in Greater Noida, India.
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In addition, Goldman Sachs predicts that capital investment will play a significant role in India’s growth. “Falling dependency ratios, rising incomes, and deeper financial sector development are likely to increase India’s savings rate and make more capital available for further investment,” states the report.
The labor force participation rate poses a challenge to Goldman Sachs’ projection, especially regarding whether it will increase at the predicted rate. The report highlights that India has experienced a decline in the labor force participation rate over the past 15 years, with significantly lower participation by women compared to men.
“A mere 20% of all working-age women in India are employed,” the investment bank noted in a separate report, suggesting that this low figure may be attributed to the prevalence of women engaging in piecework, which is not considered formal employment according to economic metrics.
Indian women at work in a bricks kiln in the northeastern state of Nagaland.
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India’s current account deficit has hindered its growth due to net exports, although services exports have helped balance the current account. Unlike many export-dependent economies in the region, India’s economy is primarily driven by domestic demand, with up to 60% of its growth attributed to domestic consumption and investments, according to Goldman Sachs.
S&P Global and Morgan Stanley have also projected that India will become the third-largest economy by 2030.
In the first quarter, India’s GDP expanded by 6.1% year-on-year, surpassing expectations. The country is estimated to achieve a full-year growth rate of 7.2% in the current fiscal year, compared to 9.1% growth in the previous year.
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