How Will India Become World’s 2nd-Largest Economy, Surpassing US?

World’s 2nd largest bank, Goldman Sachs has reported, India is projected to become the world’s second-largest economy by 2075, surpassing not only Japan and Germany but also the United States.

Currently, India is the fifth-largest economy globally, following Germany, Japan, China, and the US.

Goldman Sachs highlights innovation, technology, higher capital investment, and rising worker productivity as factors that will contribute to India’s economic growth in the coming years.

The report emphasizes the importance of capital investment as a significant driver of India’s future growth.

It predicts that India’s savings rate will increase due to falling dependency ratios, rising incomes, and the development of the financial sector, thereby providing a pool of capital for further investment.

The low dependency ratio in India, which measures the number of dependents against the working-age population, is identified as an opportunity for the country to leverage its rapidly growing workforce.

Goldman Sachs’ India economist, Santanu Sengupta, suggests that this is the window of opportunity for India to focus on setting up manufacturing capacity, expanding services, and developing infrastructure.

To fully unlock the potential of its growing population, India needs to boost labor force participation. The report notes that the labor force participation rate in India has declined over the past 15 years.

It also highlights the significantly lower participation rate of women compared to men, with only 20% of working-age women being employed.

The low figure may be attributed to women primarily engaging in work that is not accounted for by formal employment measures.

Goldman Sachs sees this as an opportune time for the private sector to scale up its capacity in manufacturing and services, creating more jobs and absorbing the large labor force in the country.

However, the report also acknowledges that net exports have been a drag on India’s growth due to its current account deficit.

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It is worth noting that other financial institutions, such as S&P Global and Morgan Stanley, have also predicted that India is on track to become the third-largest economy by 2030.