Lately, there has been a lot of buzz among influencers and news channels worldwide regarding the Indian economy and its potential to become the world's largest economy in the next 5-10 years. According to a recent report by Morgan Stanley, India's GDP is expected to exceed $7.5 trillion by 2031, which is more than twice its current levels. This would place India as the world's third-largest economy, up from its current fifth position after the USA, China, Japan, and Germany. GDP is a measure used to determine the size and wellbeing of a country's economy over a specific period of time and is also used to compare different economies at different points in time. Although India's economy has experienced challenges due to the pandemic and inflation levels caused by the Russia-Ukraine conflict, the country's economy has been consistently growing since the 2008 Global Financial Crisis. Despite the challenges, experts predict that India is on the path to becoming the third-largest economy within the next decade, citing four global trends: Demographics, Digitalization, Decarbonization, and Deglobalization.
The possible reasons are,
Off-shoring : The COVID-19 pandemic has bolstered India's appeal as a global business destination. With the advent of remote work and an increase in distributed delivery models, CEOs worldwide seem more comfortable with the idea of both work from home and work from India. This has resulted in a surge in outsourcing to India due to tighter labor markets worldwide. In the last two years of the pandemic, India's outsourcing industry has witnessed a rise in employment from 4.3 million to 5.1 million. Over the next decade, it is projected that the number of Indian employees working abroad will double to 11 million, while estimates indicate that the global outsourcing spend may increase from $180 billion annually to roughly $500 billion by 2030.
Middle-class population : The middle class is positioned between the working and upper classes within the social hierarchy and varies in definition across nations due to cultural and economic differences. In 1991, the Indian government implemented an economic liberalization program and encouraged private capital investment and foreign investment to combat an economic downturn. Initially, the middle class in India consisted of approximately thirty million people, which equated to less than 1 percent of the population. However, by 2004, the middle class had steadily increased to around 5 percent of the population and continued to grow. Between 2004 and 2012, the middle class doubled in size from 300 million to 600 million. It is predicted that the global middle class will expand significantly by 2030, with many people from India joining this group. This growth will result in increased demand for a variety of goods and services, which will be influenced by branding and product differentiation. Additionally, the expansion of the middle class in India will enhance domestic consumption and continue to boost outbound tourism. By 2023, the outbound tourism sector in India is expected to reach $45 billion, with a compound annual growth rate of 10 percent over the next five years. The preferred destinations for Indian tourists are Singapore, Thailand, the United States, and the United Kingdom, with Indian tourists ranking as the biggest spenders on their trips to these countries. Consequently, many major countries have opened their tourist offices in India in response to the growth of the middle class.
Rising Young Enterprenuers : Rising young Indian entrepreneurs are making a significant contribution to the Indian economy in several ways. First and foremost, they are creating new businesses and industries, generating employment opportunities for thousands of people. These entrepreneurs are introducing innovative products and services, which have the potential to improve the quality of life of millions of people in India. Moreover, many of these young entrepreneurs are leveraging technology to scale their businesses and reach a wider audience, not only in India but also in the global market. They are also contributing to the country's economic growth by paying taxes and creating wealth. In addition, these entrepreneurs are also playing a vital role in promoting a culture of entrepreneurship and innovation in India. They are inspiring the next generation of entrepreneurs by sharing their success stories and creating a supportive ecosystem for start-ups.
Manufacturing sector growth : India has the potential to export goods worth $1 trillion by 2030 and emerge as a major global manufacturing center. The manufacturing sector, which accounts for 17% of the country's GDP and employs over 27.3 million people, is a significant contributor to the Indian economy. The Indian government is implementing various programs and policies to increase the share of manufacturing in the country's output to 25% by 2025. With China facing challenges such as poor product quality, trade disputes, and border issues, India is in a favorable position to take advantage of China's declining competitiveness. India is also adopting a trade policy that aligns with the China-plus-one strategy, where companies diversify their businesses to alternative destinations. The ban on the import of Chinese goods has created significant opportunities for Indian producers. By 2030, the Indian manufacturing sector could add over $500 billion a year to the global economy. India's ranking for ease of doing business has significantly improved from 142 in 2014 to 63 in 2020.
Infrastructure growth: Infrastructure plays a crucial role in the economic progress of a nation, and without proper infrastructure, a country cannot achieve rapid growth. In India, real industrial development began after the liberalization policies of 1991, which aimed to eliminate the license-permit raj and reduce government intervention in businesses to promote economic growth. The policy opened up India to the global economy, reduced public sector monopolies, and facilitated competition in the market. Since then, investments in the country have steadily increased.
The transportation infrastructure of the country has traditionally relied on the road network. Within a few years, the construction of more than 5,400 km of new highways was completed, which was the most significant infrastructure development in the road sector since India gained independence. Currently, India boasts the world's second-largest road network, spanning approximately 6.22 million km. This includes 136,440 km of national highways/expressways, 176,818 km of state highways, and 5,902,539 km of other roads in the fiscal year 2020-21.
India is accelerating its efforts to develop infrastructure and link the nation. The 2019 budget has allocated $9.27 billion and the highest capital expenditure ever of $22.77 billion for the Indian Railways. In order to curb rising fuel costs, decrease reliance on imported fossil fuels, enhance the nation's energy security, reduce pollution, and improve operational efficiency and ratios, railway electrification has been prioritized. The Indian Railways has a broad-gauge network covering 64,689 km, of which approximately 71 percent, or 45,881 km, had already been electrified as of 31 March 2021. The government has set a target of complete electrification of the railway network by December 2023 and an ambitious goal of operating the entire rail network on renewable energy by 2030.
India's vast coastline spanning 7,500 km is home to 12 significant and 205 minor and intermediate ports, in addition to an extensive network of navigable waterways. As per the Ministry of Shipping, maritime transportation accounts for approximately 95 percent of India's trading by volume and 70 percent by value.
The Indian power sector is currently experiencing a significant transformation that has altered the industry's outlook. The sustained economic growth in India, which is the third largest electricity producer in Asia, continues to drive the demand for electricity. The country has increased its electricity generation capacity from 1,362 MW in 1947 to 395,600 MW as of 2022. Additionally, India has witnessed the fastest rate of growth in renewable energy capacity among all major economies. Its installed renewable energy capacity is the fourth largest in the world. The government is dedicated to boosting the use of clean energy sources and has already taken up several large-scale sustainable power projects while heavily promoting green energy.
There are significant growth opportunities in India's aviation industry, which has largely remained untapped. Air travel used to be a luxury for the common citizen until private operators entered the sector and transformed it. The industry is expected to attract a massive investment of Rs35,000 crore ($4.99 billion) over the next four years. The Indian government plans to invest $1.83 billion in airport infrastructure development and aviation navigation services by 2026. India has set a target of building 220 new airports by 2025.
Indians have a reputation for being prudent with their spending. In India, it is possible for someone earning just $2 a day to lead a content life, even if their neighbor earns $200 million a day. With the hope that such projections prove accurate, we may look forward to improved economic circumstances without concerns of a recession.
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