India is the world's fastest-growing major economy and is on track to become the third-largest economy by 2030, surpassing Germany and Japan, according to Ernst & Young (EY). It estimates that India's gross domestic product (GDP) will reach approximately $26 trillion by 2047-48 even at a modest growth rate of 6% per annum. This remarkable growth trajectory is set to elevate India's per capita income to over $15,000 (six times the current per capita income), placing it among the ranks of developed economies.
The next 25 years have been rightly deemed as the ‘Amrit Kaal’, a term inspired by Vedas, which means a uniquely auspicious period and represents India’s opportunity to proclaim a new world era.
An impressive economic growth will be propelled by 8 critical drivers:
1. India's Emergence as World's IT and Services Hub: Services sector, particularly in information technology (IT) and business process outsourcing (BPO), has been a significant contributor to India's economic growth. Services exports, which include IT services and BPO, have experienced a 14% growth over the past two decades, reaching $254.5 billion in 2021-22. India has emerged as a hub for IT and services, attracting both Indian and global companies seeking high-quality talent and innovative solutions. The country's 1500 Global Capability Centers (GCCs) represent 45% of global GCCs and provide a favourable environment for corporations to adopt cutting-edge technology at a global scale.
2. Digitization: Digitalization is an important force propelling India's economic growth. The country's rapid pace of digital transformation, both in the government and private sectors, has led to significant improvements in governance, financial inclusion, and market access for businesses.
The India Stack, a digital infrastructure that enables seamless transactions and identification, has become a global benchmark. The digital economy in India has grown 2.4 times faster than the overall economy between 2014 and 2019, with platforms like the Open Credit Enablement Network (OCEN) and the Open Network for Digital Commerce (ONDC) democratizing credit and expanding e-commerce markets.
3. Focus on bridging the Credit Gap to stimulate growth: Among major global economies, India maintains one of the lowest debt-to-GDP ratios at 55%. India has significant room to expand its overall debt relative to the size of its economy. Currently, there remains an underserved demand for enterprise credit in India that goes beyond what is currently provided by banks and the corporate bond market. This presents a massive opportunity for India to strategically increase its leverage, bridging the credit gap and fueling growth effectively.
4. Thriving Entrepreneurial Ecosystem by Private Investments: India now ranks as the third-largest start-up ecosystem globally, attracting substantial private equity and venture capital investments. These investments, which reached $82 billion in FY21-22, contribute to sustained high growth and instil confidence in India as an investment destination.
5. Largest Talent Pool Globally: India, the world’s most populous nation, is home to one-sixth of the global population. Its large talent pool, which also includes the largest pool of English-speaking STEM graduates, will enable it to become the largest contributor to the global workforce for the next several decades. India is projected to contribute around 25% of the additional global workforce in the coming decade. By 2030, India's working-age population is expected to surpass 1 billion. In contrast, developed countries are experiencing a decline as the population is ageing.
6. A Competitive manufacturing sector in making: With a focus on building a competitive manufacturing sector, leveraging the government's 'Aatmanirbhar Bharat' (self-reliant India) initiative and initiatives like production-linked incentives (PLI). The expansion of the manufacturing sector would play a vital role in generating fresh employment prospects for the 43% of the workforce presently employed in agriculture. Additionally, manufacturing growth stimulates investments in infrastructure, facilitating swift and efficient movement of goods, while also acting as a catalyst for further advancements in the services sector.
7. Infrastructure for Tomorrow: An accelerated Infrastructure improvement would steadily boost the competitiveness of enterprises. After witnessing massive upgrades in Roadways, the focus is on Rail, Air and Water along with the “Gati Shakti” initiative which will focus on a world-class infrastructure and logistics synergy across different modes of movement. The overall goal of the initiative is to increase competitiveness and economic growth in India.
This is being supplemented by IT-based ease-of-doing-business initiatives such as the National Logistics Policy which aims to increase the speed and lower the cost of movement. The objective is to decrease logistics expenditure from its current range of 14-18% of GDP to a global benchmark of 8% by 2030.
8. Progressing into a sustainable Energy Era: India's commitment to sustainable energy and reducing carbon intensity is also pivotal. The government aims to achieve net-zero emissions by 2070 and reduce carbon intensity by 45% by 2030. The country's focus on renewable energy and the development of green hydrogen presents opportunities for private enterprises to participate in the clean energy transition.
India's immense potential, combined with its talent pool, economic reforms, energy transition breakthroughs, and digital transformation, positions it as an attractive investment opportunity on the world stage. As the fastest-growing major economy, India is poised to make a transformative impact and become a $26 trillion economy within the next 25 years.
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