homeeconomy NewsIndia to surpass Japan and Germany to become the third largest economy by 2030: Report

India to surpass Japan and Germany to become the third largest economy by 2030: Report

A protracted global recession is a major obstacle that might challenge Morgan Stanley's forecast because India has a highly trade-dependent economy and about 20 percent of its output is exported.

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By Nishtha Pandey  Dec 2, 2022 11:42:41 AM IST (Published)

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India to surpass Japan and Germany to become the third largest economy by 2030: Report
India is expected to overtake Japan and Germany to become the world's third-largest economy, according to S&P Global and Morgan Stanley. S&P's forecast is based on the expectation that India's annual nominal gross domestic product (GDP) growth will average 6.3 percent through 2030.

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In a similar manner, Morgan Stanley predicts that by 2031, India's GDP will have more than doubled from current levels, as reported by CNBC. India has the conditions in place for an economic boom fueled by offshoring, investment in manufacturing, the energy transition, and the country’s advanced digital infrastructure, according to Morgan Stanley.
“These drivers will make
India posted a 6.3 percent growth for the July-September quarter, according to data released by the National Statistics office.
“These projections assume continued structural reforms, including trade and financial liberalization, infrastructure and human capital investment, and labour market reform,” said the report by S&P.
India to become an export-driven economy
According to analysis at S&P, efforts by the India Government have already been focusing on assisting private companies through programmes like production linked incentives (PLI) to increase manufacturing, investment, and export across industries as India strives to become a global manufacturing hub.
“It is very likely that the government is banking on PLIs as a tool to make the Indian economy more export-driven and more inter-linked in global supply chains,” S&P analysts wrote.
Morgan Stanley too estimates that Indian manufacturing’s share of GDP will “rise from 15.6 percent of GDP currently to 21 percent by 2031”. This means that according to the Bank, the revenue from manufacturing revenue is expected to increase three times from the current $447 billion to around $1,490 billion.
“Multinationals are more optimistic than ever about investing in India … and the government is encouraging investment by both building infrastructure and supplying land for factories,” Morgan Stanley said.
The challenges
A protracted global recession is a major obstacle that might challenge Morgan Stanley's forecast because India has a highly trade-dependent economy and about 20 percent of its output is exported.
Although the second quarter GDP growth reading has come in at 6.3 percent which is in line with the Reserve Bank of India's (RBI) forecast. However, the gross value added (GVA) is up only 5.6 percent, which raises the question: is the economy not as strong as the GDP number is indicating? Moreover, manufacturing is shockingly weak coming at a negative 4.3.
One more factor that can act as a challenge is net exports. Imports have grown much more than exports, the net imports are almost double what it was a year ago. This is a drag on the GDP.
Mridul Saggar, a former member of the Monetary Policy Committee believes that global exports are slowing and this will give India fewer opportunities.
“Slowdown seems to be coming. It's coming globally, it's coming less in India. In India, domestic factors have also driven the growth down. So that is the main aspect of it,” he said.
Analysts too have recently reduced their predictions for India’s GDP growth. Taking into account high borrowing costs and fading effects of post-pandemic reopening of the economy, Goldman Sachs has slashed GDP growth expectations to 5.9 percent in 2023, as compared to the 6.9 percent growth of 2022.
Last week, the Finance Ministry said global recession may dampen the future for India's export industry.
In November, Moody’s cut its India GDP growth forecast for 2022 to 7 percent from its earlier estimates of 7.7 percent on rising inflation, high interest rate and a global slowdown in terms of economy.

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