India's economic prospects are on an upward trajectory, as Goldman Sachs predicts that the country could become the world's second-largest economy by 2075. Currently ranked as the fifth-largest economy, India is expected to surpass not just Japan and Germany but also the United States. The forecast is driven by factors such as a growing population, advancements in innovation and technology, increased capital investment, and rising worker productivity.
Goldman Sachs Research's India economist, Santanu Sengupta, emphasizes the importance of India's low dependency ratio in unlocking the potential of its workforce. The dependency ratio, which measures the number of dependents compared to the working-age population, indicates that India has a proportionally higher number of adults who can support the youth and elderly. Sengupta believes that India has a window of opportunity over the next two decades to capitalize on this demographic advantage by strengthening manufacturing capacity, expanding services, and investing in infrastructure.
The Indian government has recognized the significance of infrastructure development and has prioritized initiatives in road and rail construction. The recent budget aims to continue interest-free loan programs to state governments, encouraging investments in infrastructure projects. Goldman Sachs sees this as an opportune time for the private sector to scale up manufacturing and services, creating more job opportunities and absorbing the country's large labor force.
Technology and innovation are key drivers of India's economic growth. The country's technology industry is projected to see a substantial increase in revenue, particularly in IT, business process management, and software products. Capital investment is also expected to play a significant role in driving India's growth, with rising savings rates, increasing incomes, and a developed financial sector providing ample capital for further investment.
However, there are potential risks to India's economic trajectory. The labor force participation rate, especially among women, needs to improve in line with Goldman Sachs' projections. Currently, women's participation in the labor force is significantly lower compared to men. Addressing this disparity and creating more opportunities for women in formal employment is crucial for India's sustained growth.
India's current account deficit, driven by net exports, has been a drag on economic growth. However, the country's services exports have helped offset this imbalance. Unlike many export-dependent economies, India's growth is primarily driven by domestic demand, with around 60% attributed to domestic consumption and investments.
Other financial institutions, such as S&P Global and Morgan Stanley, have also predicted a bright economic future for India, projecting it to become the third-largest economy by 2030. In the first quarter of the fiscal year, India's GDP expanded by 6.1% year on year, surpassing expectations. Full-year growth is estimated to be 7.2%, showcasing the country's resilience and potential for further economic advancement.
As India continues its growth trajectory, addressing challenges related to labor force participation, export competitiveness, and gender parity will be crucial. Leveraging its demographic advantage, investing in key sectors, and fostering a favorable business environment will enable India to realize its potential as a global economic powerhouse.
