India may become the third largest economy by 2030, overtaking Japan and Germany

According to S&P Global and Morgan Stanley, India is on track to surpass Japan and Germany to become the third-largest economy in the world.

The prediction from S&P is based on the assumption that India’s nominal annual GDP growth will average 6.3% through 2030. In a similar vein, Morgan Stanley predicts that by 2031, India’s GDP would have more than doubled from present levels.
According to a research by Morgan Stanley analysts led by Ridham Desai and Girish Acchipalia, “India has the conditions in place for an economic boom fuelled by offshoring, investment in manufacturing, the energy shift, and the country’s sophisticated digital infrastructure.”

By the end of the decade, [India’s] stock market and economy will be the third-largest in the world thanks to these factors.

India outperformed the 6.2% expectation in a Reuters survey, posting year-over-year growth of 6.3% for the quarter that ran from July to September. Prior to this, India reported an increase of 13.5% for the months of April through June compared to the same period the previous year, supported by strong domestic demand in the nation’s service sector.

According to Refinitiv statistics, the nation had record-breaking growth of 20.1% year-over-year in the three months leading up to June 2021.
The continuance of India’s financial and trade liberalization, labor market reform, and investments in the country’s infrastructure and human resources are all crucial to S&P’s prediction.

India has a lot to “catch up” on in terms of economic growth and per capita income, therefore this is a fair goal, according to Dhiraj Nim, an economist at Australia and New Zealand Banking Group Research, who spoke to CNBC.

Nim noted that some of the listed measures have already been put into action and that the administration is committed to allocating greater funds for capital spending in the nation’s yearly expenditure books.

becoming a hub that is more export-driven
The Production Linked Incentive Scheme, which increases manufacturing and exports, is the major tool the Indian government uses to achieve its goals of becoming a center for international investors and a manufacturing powerhouse, according to S&P analysts.

The so-called PLIS, which went into effect in 2020, provides tax breaks and license approvals as well as other advantages to both local and international companies.

The government is most likely relying on PLIS as a vehicle to increase India’s export-driven economy and its interconnectedness with global supply chains, according to S&P analysts.
Similarly, Morgan Stanley predicts that manufacturing would contribute 21% of Indian GDP by 2031, up from its present 15.6%, which suggests a potential growth in manufacturing revenue of up to three times its current $447 billion level.

The government is promoting investment by both creating infrastructure and providing land for manufacturing, according to Morgan Stanley. “Multinationals are more bullish than ever about investing in India,” Morgan Stanley stated.

Sumedha Dasgupta, a senior analyst with the Economist Intelligence Unit, stated that “India’s advantages [include] abundant low-cost labor, the cheap cost of manufacturing, openness to investment, business-friendly legislation, and a young generation with a strong proclivity for spending.”

According to her, these elements make India an appealing option for the establishment of industrial centers through the end of the decade.

risk elements
A protracted global recession is a major obstacle that might derail Morgan Stanley’s prediction since India has a highly trade-dependent economy and about 20% of its output is exported.

The U.S. investment bank also included the availability of trained workers, unfavorable geopolitical developments, and policy mistakes that may result from electing a “weaker administration.”

The future for India’s export industry may be harmed by the global recession, the country’s finance minister said last Thursday.
Even while India’s GDP overall is now higher than it was before to Covid, Sonal Varma, chief economist at Nomura, predicted that future growth will be “far less” than it had been in the preceding quarters.

Real GDP is currently 8% over pre-Covid levels in growth rate terms, but there are headwinds from the global financial circumstances, Varma said on CNBC’s Squawk Box on Thursday, predicting a cyclical decline in the future.

In a similar vein, Nim said that investing in people’s health and education may be given higher emphasis.

He said that the declining labor force participation rate, particularly among women, was worrying. “This is especially significant for a post-pandemic economy when increased disruptions to the informal sector have meant expanded income and wealth inequality,” he said.

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