Jakarta, CNBC Indonesia – India it is projected to become the world’s third largest economic power in 2030, behind the two superpowers, namely the United States (US) and China.
The projection was disclosed by S&P Global and Morgan Stanley, where S&P refers to gross domestic product (GDP) growth to average 6.3% through 2030. Meanwhile, Morgan Stanley estimates that India’s GDP should increase more than double by 2031.
Therefore, India will overtake countries with other major economies, such as Japan, Germany and the UK.
“India has the conditions for an economic boom driven by offshoring, investment in manufacturing, energy transition and a developed digital infrastructure of the country,” Morgan Stanley analysts led by Ridham Desai and Girish Acchipalia wrote in the report, citing CNBC InternationalThursday (1/12/2022).
“These drivers will make the economy and the stock market [India] third largest in the world before the end of the decade.”
India has experienced annual GDP growth (Year after year/y/y) of 6.3% in the third quarter of 2022, slightly higher than the Reuters survey estimate of 6.2%. Previously, India had recorded 13.5% year-on-year growth in the second quarter of 2022, supported by strong domestic demand in the country’s services sector.
Meanwhile, S&P’s projections hinge on the continuation of India’s trade and financial liberalisation, labor market reforms and investment in India’s infrastructure and human capital.
“This is a reasonable expectation from India, which has a lot to catch up in terms of economic growth and per capita income,” Dhiraj Nim, an economist at Australia and New Zealand Banking Group Research, told CNBC.
Some of the reforms mentioned have been implemented, Nim said, underscoring the government’s commitment to set aside more capital expenditures in the country’s annual budget.
Production center
According to S&, there is a clear goal from the Indian government to become a hub for foreign investors and a driving force for the manufacturing sector, and their main vehicle for doing so is through the Production-Related Incentives Scheme (PLIS).
The so-called PLIS, introduced in 2020, offers incentives to domestic and foreign investors in the form of tax breaks and permits, among other stimuli.
“The government is very likely to rely on PLIS as a tool to make the Indian economy more export-oriented and more interconnected in global supply chains,” S&P analysts wrote.
Similarly, Morgan Stanley projects that manufacturing’s share of India’s GDP will increase from 15.6% of GDP today to 21% by 2031, implying that manufacturing revenues could triple from the current $447 billion to about $1.49 trillion.
“Multinational corporations are more optimistic than ever about investment in India … and the government is encouraging investment by building infrastructure and providing land for factories,” Morgan Stanley said.
“Indian advantage [termasuk] Abundant cheap labor, low production costs, openness to investment, business-friendly policies and a young population with a strong propensity to consume,” said Sumedha Dasgupta, senior analyst at the Economist Intelligence Unit.
These factors make India an attractive option for establishing a manufacturing hub towards the end of the decade, he said.
Risk factors
Just like other projections, Morgan Stanley has said that there are risk factors, including a prolonged global recession. This is because India is a heavily trade dependent economy with nearly 20% of its domestic output being exported.
Other risk factors cited by the US investment bank include the supply of skilled labor, adverse geopolitical events and policy mistakes that could result from voting in a “weaker government”.
Meanwhile, India’s Finance Ministry earlier said the global slowdown could dampen the outlook for India’s export activities.
Meanwhile, even though India’s aggregate GDP is already above pre-Covid-19 levels, future growth is projected to be much weaker. compared to the previous quarter,
“Real GDP is now 8% above pre-Covid levels in terms of growth rates… but there are headwinds ahead on the global side of financial conditions,” said Sonal Varma, chief economist at Nomura.
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