India is on track to overtake both Germany and Japan as the world's third-largest economy by decades end, according to analysts at S&P Global and Morgan Stanley
S&P expects India will continue to experience a nominalized annual growth rate of 6.3% between now and 2030. Meanwhile, analysts at Morgan Stanley expect India's GDP to double to roughly $6.2 trillion over the same timeframe.
Currently, India's growth rate falls in line with S&P's projections. The nation's economy expanded by 6.3% year over year during the third quarter while earlier growing by 13.5% between April and June.
Meanwhile, S&P forecasting data demonstrates that the value of India's exports swelled by 279.5% between 2005 and 2021, illustrating the nation's increasingly integral role in global supply chains. At the same time, Morgan Stanley predicts that the value of India's exports, as a share of GDP, will rise from 15% today to 21% by 2031.
"India's advantages [include] abundant low-cost labor, the low cost of manufacturing, openness to investment, business-friendly policies and a young demographic with a strong penchant for consumption," Sumedha Dasgupta, a senior analyst from the Economist Intelligence Unit, told CNBC. She added that these factors would make India an attractive outsourcing option until the end of the decade.
Nevertheless, S&P's forecasts assume continued economic reform and investment on India's part regarding trade, infrastructure, labor, and human capital.
Such reforms are "reasonable" to expect from India, Dhiraj Nim, an economist from Banking Group Research, told CNBC, citing increased capital expenditure in the country's annual budget as evidence that said reforms are already ongoing.
Still, S&P says India's primary focus will be on making the country more self-reliant in areas like manufacturing, spurring job growth, and boosting foreign and domestic investment, owing to political opposition to certain key reforms.
So-called Production Linked Incentive Schemes (PLIS) are central to this effort, says S&P. These programs, introduced in 2020, offer tax rebates, licensing clearances, and other incentives to investors in exchange for a fixed amount of capital to help the country reach its growth targets.
S&P also notes India's elevation of certain conglomerates, or champions, which the country hopes to make competitive with more familiar corporate mainstays across the globe. S&P expects India to push for more foreign and domestic investment in these so-called champions while implementing more PLIS programs, especially in key sectors like electronics, renewables, and mining. The growing success of these firms should allow India to further cooperate with neighboring economies, particularly those involved in the Association of Southeast Asian Nations (ASEAN), boosting India's regional relevance.
Still, Morgan Stanley says that the global economic slowdown might throw off India's growth in the near term as its economy remains highly export-driven. In fact, just Last month, India's finance ministry said the current slowdown might hamper the growth of India's exports.
Nim further told CNBC that the government could prioritize health and education investment in light of current global headwinds.
"This [investment] is especially important for a post-pandemic economy where greater disruptions to the informal sector have meant widened economic and wealth inequalities," he said.
