Goldman Sachs: India to Become World’s Second-Largest Economy by 2075

Goldman Sachs: India to Become World’s Second-Largest Economy by 2075

Goldman Sachs Research says that India could become the world’s second-largest economy by 2075, leapfrogging U.S., Japan, and Germany. It added that India’s population of 1.4 billion people is expected to drive significant economic growth. Spearheading India’s economic trajectory is also its progress in technology and innovation, the investment bank said. Additionally, it predicted capital investment will be another significant driver of India’s growth.

Currently, India is the world’s fifth-largest economy, behind Germany, Japan, China and the U.S.

Santanu Sengupta, Goldman Sachs Research’s India economist, said, “Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies.”

Sengupta highlighted the importance of enhancing labor force participation and providing training and skills to harness India’s vast talent pool. He emphasized the favorable demographics of India, with a robust working-age population in relation to children and the elderly, presenting an opportune window for India to optimize its manufacturing capacity, expand services, and foster infrastructure growth.

India’s government has placed a priority on infrastructure creation, especially in the setting up of roads and railways. The country’s recent budget aims to continue the 50-year interest-free loan programs to state governments in order to spur investments in infrastructure.

Goldman Sachs believes that this is an appropriate time for the private sector to scale up on creating capacity in manufacturing and services in order to generate more jobs and absorb the large labor force.

The downside to the bank’s projection is the labor force participation rate — and whether it increases at the rate which Goldman projects.

“The labor force participation rate in India has declined over the last 15 years,” the report noted, underlining that women’s participation rate in the labor force is “significantly lower” than men’s. In an earlier report in June, however, Goldman said the low figure could be due to women being primarily engaged in piecework, which is not accounted for by the economic measures of formal employment.

Net exports have also been a drag on India’s growth, because the country runs a current account deficit, Goldman said. The bank highlighted, however, that services exports have been cushioning current account balances.

According to the report, India’s economy is driven by domestic demand, unlike many more export-dependent economies in the region, with up to 60% of its growth mainly attributed to domestic consumption and investments.

You can read the report here.


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