By 2075, India will surpass not just Japan and Germany but also the United States to become the second-largest economy in the world, according to Goldman Sachs.

India currently has the fifth-largest economy in the world, trailing only China, the United States, Japan, and Germany.

In addition to a growing population, the country’s advancements in innovation and technology, increased capital investment, and improved worker productivity are what are fueling the prediction, according to a recent analysis by the investment bank.

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

The dependence ratio of a nation is determined by dividing the total population of working age by the number of dependents. A low dependency ratio means that there are proportionately more persons in their working years who can support children and the elderly.

Sengupta went on to say that increasing labour force participation is the key to maximising the potential of India’s rapidly expanding population. And Sengupta predicts that for the next 20 years, India will have one of the lowest reliance percentages among major economies.

“So that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services, continuing the growth of infrastructure,” he said.

India’s government has prioritised building infrastructure, particularly when it comes to building highways and railroads. In order to encourage investments in infrastructure, the nation’s most recent budget plans to maintain the 50-year interest-free lending programmes to state governments.

According to Goldman Sachs, now is the right time for the private sector to increase capacity creation in manufacturing and services in order to produce more employment and saturate the vast labour force.

India’s advancements in technology and innovation are also driving the country’s economic trajectory, according to the investment bank.

According to Nasscom, India’s non-governmental trade organisation, the country’s technology sector’s revenue is anticipated to rise by $245 billion by the end of 2023.

According to Nasscom’s research, this increase will come from all areas of IT, business process management, and software product streams.

Goldman also anticipated that capital investment will be a big development engine for India.

“India’s savings rate is likely to increase with falling dependency ratios, rising incomes, and deeper financial sector development, which is likely to make the pool of capital available to drive further investment,” Goldman’s report stated.

The labour force participation rate, and whether it rises at the rate predicted by Goldman, is the bank’s projection’s Achilles’ heel.

“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.

“A mere 20% of all working-age women in India are in employment,” the investment bank wrote in a separate report in June, citing that 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.

India’s current account deficit and net exports have both hampered India’s economy, according to Goldman. However, the bank emphasised that exports of services have padded current account balances.

Unlike many other economies in the area that are more dependent on exports, India’s economy is driven by local demand, with up to 60% of its growth mostly attributable to domestic consumption and investments, according to Goldman’s analysis.

By 2030, India’s economy is expected to grow to be the third-largest in the world, according to predictions made by S&P Global and Morgan Stanley.

India’s first-quarter GDP increased 6.1% year over year, far exceeding the 5% growth forecast by Reuters. The country’s full-year growth is predicted to be 7.2%, down from the fiscal year 2021–2022’s 9.1% growth.

(Adapted from LiveMint.com)

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