India on track to become third-largest economy – report

India is on track to become the third-largest economy in the world by 2031, according to S&P Global. It is currently the fifth-largest economy in the world, behind the US, China, Japan, and Germany. Analysts expect the country to become a $10 trillion economy by the end of this decade. 

S&P forecasts 6.7% annual GDP growth for the country in its latest report. According to government data, GDP expanded by 8.2% in fiscal year 2023-24 and 7.2% in the prior fiscal year, solidifying India’s position as the world’s fastest-growing major economy. 

Earlier this month, the World Bank raised its growth forecast for India to 7% for the current fiscal year, up from 6.6%. This revision reflects expectations of stronger economic performance, supported by factors including private consumption and investment.

The report notes that while the economy shows resilience, achieving the ambitious goal of $1 trillion in merchandise exports by 2030 will require strategic diversification and greater integration into global value chains.

This update echoes similar optimism from the IMF, which also revised its growth projection for the current fiscal year for India to 7% in July, an increase of 20 basis points. The IMF highlighted a significant rise in private consumption as a key factor driving this adjustment.

To sustain growth, India should introduce reforms to enhance business transactions and logistics, increase private-sector investment, and reduce reliance on public capital, S&P wrote, adding that the country needs to focus on developing port and coastline infrastructure to accommodate rising exports.

Last month, New Delhi approved a proposal for building a large port on its western coast to connect with major global trade networks, including Russia, Central Asia, and Europe. The port, to be built in the state of Maharashtra, will aid the flow of trade through the International North-South Transportation Corridor. The route passes through Iran, where India is also developing a massive project – Chabahar Port in the Gulf of Oman. It offers India a strategic foothold in the region, providing a direct route to a number of markets that are also eyed by China through its Belt and Road Initiative.

S&P said that to support rapid growth and overcome air pollution and climate change threats, India needs to accelerate its energy transition. To meet these challenges, the report notes, India is diversifying energy sources and enhancing grid infrastructure, aiming to more than triple renewable capacity to around 500 GW by 2030.

Additionally, India is focusing on low-emission technologies such as green hydrogen, green ammonia, small nuclear reactors, and carbon capture, utilization, and storage to reach its climate goals.

The agriculture sector, which contributes 18% to GDP and is also responsible for the livelihoods of 47% of the population, will rely on advanced technologies and new policies “to improve infrastructure and productivity.”

The rating agency also predicted that AI will play a crucial role in several key sectors in the future. The AI market in India is expected to grow by $17 billion-$22 billion by 2027, attracting investments of $4 billion, according to NASSCOM.