India is set to surpass Japan, Germany, and even the United States to become the world’s second-largest economy by 2075, according to a recent report by Goldman Sachs. Currently, India ranks as the fifth-largest economy globally, trailing behind Germany, Japan, China, and the U.S. The forecasted growth is driven by several factors, including a growing population, advancements in innovation and technology, increased capital investment, and rising worker productivity.
Goldman Sachs Research’s India economist, Santanu Sengupta, highlights India’s low dependency ratio as a key factor in unlocking the potential of its rapidly growing population. The dependency ratio measures the number of dependents against the total working-age population. With one of the lowest dependency ratios among regional economies, India is expected to have proportionally more working-age adults who can support the youth and elderly. This presents India with a unique opportunity to focus on setting up manufacturing capacity, expanding services, and developing infrastructure within the next two decades.
Infrastructure and Job Creation
India’s government recognizes the importance of infrastructure development and has made it a priority. The recent budget includes plans to continue interest-free loan programs to state governments, specifically aimed at spurring investments in infrastructure such as roads and railways. Goldman Sachs believes this is an opportune time for the private sector to scale up manufacturing and services, creating more jobs and absorbing the large labor force.
Technological Advancements and Capital Investment
India’s progress in technology and innovation is also driving its economic trajectory. The country’s technology industry revenue is expected to increase by $245 billion by the end of 2023, according to Nasscom, an Indian trade association. This growth will come from various sectors, including IT, business process management, and software products.
Furthermore, Goldman Sachs predicts that capital investment will be a significant driver of India’s growth. As falling dependency ratios, rising incomes, and deeper financial sector development increase India’s savings rate, more capital will be available for further investment.
Challenges and Export Dependency
One challenge that Goldman Sachs identifies is the labor force participation rate, particularly for women. Over the past 15 years, India has experienced a decline in labor force participation. The report underscores that women’s participation rate in the labor force is significantly lower than men’s, with only 20% of working-age women being employed. This may be attributed to women’s engagement in piecework, which is not accounted for in formal employment measures.
Additionally, India’s current account deficit and net exports have hindered its growth. However, Goldman Sachs notes that services exports have helped cushion current account balances. Unlike many export-dependent economies in the region, India’s economy is primarily driven by domestic demand, with approximately 60% of its growth attributed to domestic consumption and investments.
Other financial institutions, such as S&P Global and Morgan Stanley, have also predicted India’s rise, projecting it to become the third-largest economy by 2030. India’s first-quarter GDP growth of 6.1% year-on-year surpassed expectations, and the country’s full-year growth is estimated to reach 7.2%.
India’s trajectory toward becoming the world’s second-largest economy by 2075 is fueled by its population growth, advancements in innovation and technology, capital investment, and rising worker productivity. The country’s low dependency ratio presents a window of opportunity for India to focus on manufacturing capacity, services, and infrastructure. However, challenges such as labor force participation and export dependency need to be addressed. With the right strategies and investments, India has the potential to achieve significant economic growth in the coming decades.
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