India to become 2nd largest economy by 2075?

According to a research report from international investment banking giant Goldman Sachs, India will have the second-largest economy in the world after China by 2075 as a result of expanding service exports, advancements in innovation and technology, and a favorable environment for private sector capital expenditure.

However, it stated that a significant downside risk is India’s declining labor force participation rate. The main risk to the report’s findings is that the labor force participation rate will not increase. In India, the labor force participation rate has decreased over the past 15 years, and women’s rates are significantly lower than men’s.

“India has made great strides in the digitalization of its economy, both through increased Internet and mobile usage. However, you also have the largest biometric ID system in the world, known as Aadhaar, which allows you to verify the identity of the 1.4 billion people in the world both physically and online, according to Santanu Sengupta, the India economist for Goldman Sachs Research.

Sengupta added that the delivery of public services is much simpler and more targeted thanks to Aadhaar. The expansion of the credit market results in smaller businesses receiving more credit, which may benefit growth through an increase in productivity. Future growth will also be significantly fueled by capital investment, he continued.

With declining dependency ratios, rising incomes, and deeper financial sector development, India’s savings rate—driven by favorable demographics—is predicted to rise. This will likely increase the pool of capital available to drive additional investment. The government has recently performed the labor-intensive tasks on this front, Sengupta continued.

Up until this point, domestic consumption—which accounts for about 55–60% of the total economy—and domestic investments have been the main drivers of India’s growth. These macro imbalances have been decreasing over the past few years, and you are experiencing less macro vulnerability due to two factors: inflation targeting and services exports, which are cushioning the current account balance.

The World Bank previously stated that it anticipates India’s growth to further slow, to 6.3% in the fiscal year FY 2023/24 (April to March). The main cause of the slowdown, according to the international financial institution, is low private consumption due to high inflation. While this was happening, the IMF also reduced India’s projected 5.9% GDP growth for the fiscal year 2023–2024 by 20 basis points.

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