India projected to become world’s third largest economy overtaking Japan and Germany: S&P
- India is expected to witness strong growth on the back of rising per capita income, boosting domestic manufacturing and deepening trade ties with global economies, says a report.
- While the long term GDP growth is expected to improve, the near term challenges continue to persist.
- Recently, analysts have been slashing GDP growth expectations on account of high borrowing costs and fading effects of pandemic reopening.
AdvertisementIndia’s real GDP is expected to grow at a pace of 6.3% annually between FY2021-30 – more than the global average growth rate, says a report by S&P Global.
With this, India is expected to become the world’s third largest economy beating Japan, Germany, in nominal US dollar terms. This will be achieved on the back of rising per capita income, boosting domestic manufacturing and deepening trade ties with global economies, shares the report.
Real income per capita is projected to achieve significant average growth of 5.3%, with Indian households becoming the greatest spenders among G20 economies, as per the S&P report.
“These projections assume continued structural reforms, including trade and financial liberalization, infrastructure and human capital investment, and labour market reform,” said the report.
(Source: S&P Global)
India to become more export-driven economy
As India aims to become a manufacturing hub it is supporting private players via incentive schemes such as production linked incentives (PLI) to boost manufacturing, investment and export across sectors.
“It is very likely that the government is banking on PLIS as a tool to make the Indian economy more export-driven and more inter-linked in global supply chains,” said the S&P Global report.
The report highlights that between 2005 and 2021, the value of India's exports increased by 279.5% and imports increased by 301.6%. The US, the United Arab Emirates, and mainland China accounted for about 30% of India's trade in 2021, in value terms.
Further, India will strategise trade with neighbouring as well as other advanced and developing economies in the coming time, says the S&P Global report.
“Currently, India contributes to only 2% of global exports; China/US/Germany are at 15%/8%/7%. The Indian government’s focus on promoting exports is evident through the extensive range of PLIs and free trade agreements (FTAs) under negotiations,” said a report by Phillip Capital.
The Phillips Capital report shares that factors like PLIs, FTAs, alternate technologies/fuels, domestic demand, favourable government policies, healthy balance sheets of consumers, corporates and banks will continue to drive GDP higher in the years to come.
Near term growth challenges
While the long term GDP growth is expected to improve, the near term challenges continue to persist. Recently, analysts have been slashing India’s GDP growth expectations.
Goldman Sachs has slashed GDP growth expectations to 5.9% in 2023, as compared to the 6.9% growth of 2022, on account of high borrowing costs and fading effects of post-pandemic reopening of the economy.
In the second week of November, Moody’s too cut its
“We are cognizant of the adverse impact of higher interest cost and global economic slowdown in the near-term, but we believe any consequent correction in equities will be an investment opportunity, considering India Growth Story 2.0 has started – many engines firing simultaneously,” said a report by Phillip Capital.
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