India To Become World’s Third Biggest Economy

According to experts, India’s economy is likely to be the third biggest in the world by 2027. Currently sitting at $3.73 trillion USD, India’s economy is $0.5 trillion behind Japan and $0.7 trillion behind Germany. But this seems set to change.

If you send money to India, you can check our best exchange rates and sign up with us.

How much growth will there be?

The Indian Finance Ministry expects a 7% growth in this fiscal year, and the same again in 2025. They are forecasting an economy of $5 trillion by 2027. V Anantha Nageswaran, India’s chief economic advisor, explained that “The robustness seen in domestic demand, namely, private consumption and investment, traces its origin to the reforms and measures implemented by the government over the last ten years”. He notes “the robustness seen in domestic demand, namely, private consumption and investment” has led to a growth in physical and digital infrastructure. This has helped to boost the economy by increasing the supply of manufacturing.

The First Deputy Managing Director of the International Monetary Fund, Gita Gopinath, made a similar prediction. She said that “India will be the world’s third-largest economy by 2027-28. It will contribute 15% of global growth this year and will be a key driver of economic growth in the years to come”. She added that “India is really on the forefront” of digital public infrastructure, “not just in terms of innovation, but also on the fiscal front. Other countries in the world are paying attention to what India is doing in this space.”

The extent of the growth has been an unexpected surprise, with the Reserve Bank of India initially predicting a 6.5% growth. This goes to show how difficult it can be to forecast numbers, and with so much growth across industries in India, there are seemingly no limits on how much the Indian economy could grow. Morgan Stanley have predicted that India’s overall share of global growth contribution will be 17% between 2023 and 2028; a significant uptick from the 10% of 2021.

In fact, India’s GDP has already seen an extraordinary period of growth. It was ranked tenth in the world as recently as 2014.

Why is India’s Economy Growing So Fast?

The growth is coming from many different areas. For example, India’s stocks grew by 20% in 2023, with more and more people worldwide believing in the growth prospects of the country. There is a forecasted earnings growth of 17.8% for India this year, which is one the fastest rates in Asia. HSBC explained that “While foreign investors tend to be active in large caps, it is local investors that dominate the small and mid-cap space, which partly explains the outperformance.”

India makes a lot of money out of exported goods now as well. For example, the country was the second largest exporter of ocean-based goods and services for developing countries in 2020.

Most other advanced economies are slowing down due to high inflation rates and ageing population, meaning India has a significant advantage compared to many other countries. India has already overtaken China’s population, and they are estimated to move past China’s working-age population by 2030. This is expected to remain in place for the rest of the century, with India eventually having a significantly higher working population than China.

“The 21st century will be India’s century” – Nirmala Sitharaman

2047

The growth is expected to continue well into the future. Finance minister Nirmala Sitharaman said that it was a “conservative estimate” to say the Indian GDP will be at $30 trillion by the year 2047. By this stage, Sitharaman expects India to be a developed country.

2075

It has even been argued by Goldman Sachs that India’s economy could be bigger than that of the US by 2075, by which time China will have the world’s largest economy.

Currently, India is the world’s fifth-largest economy, behind the US, China, Japan and Germany. According to Santanu Sengupta, “Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies”, meaning the proportion of the working-age population is going to be very high. Sengupta believes if India uses their growing population to increase the size of their labour force, they will see significant growth in manufacturing and infrastructure.

Conclusion

The Indo-Pacific region is now comfortably the largest economic region in the world, taking up 60% of global GDP, with 70% of world GDP growth coming from the region through the last decade.

Historically, India’s economic fortunes have drastically fluctuated. In the year 1700, India accounted for almost a quarter of global GDP. In 1993, this number was down to just 1%, but it has grown now to around 3%. Obviously there are many different factors that can and will affect the growth of India’s economy going forward, but it does seem certain that they are on a very upward trajectory. As industries grow and infrastructure is put in place, this massive nation is drawing closer to becoming a financial powerhouse.