India to surpass US to become world’s 2nd largest economy by 2075: Goldman Sachs

Goldman Sachs in a report on Monday said India, the fifth-largest economy, will become the second largest economy in the world by 2075 surpassing not only Japan and Germany but also the United States.

According to the investment bank report the innovation and technology, higher capital investment and rising worker productivity to increase drastically due to the burgeoning population of the country.

Currently, India is the world’s fifth-largest economy, behind Germany, Japan, China and the US.

"Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies," CNN quoted Santanu Sengupta, Goldman Sachs Research's India economist, as saying. Sengupta added that the key to drawing out the potential of India's rapidly growing population is boosting participation within its labour force.

Sengupta also forecasts that India will have one of the lowest dependency ratios among large economies for the net 20 years. “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,” Sengupta said.

The Goldman Sachs report said the India’s government has placed a priority on infrastructure creation, especially in the setting up of roads and railways. The country’s recent budget aims to continue the 50-year interest free loan programs to state governments in order to spur investments in infrastructure.

Goldman Sachs believes that this is an appropriate time for the private sector to scale up on creating capacity in manufacturing and services in order to generate more jobs and absorb the large labor force.

Tech and investments

The investment bank said in innovation and technology are going to be important for the India’s economic trajectory. Meanwhile, Nasscom--India’s non-governmental trade association --said technology industry revenue of the country is expected to increase by $245 billion by the end of 2023. That growth will come from across the IT, business process management and software product streams, Nasscom’s report said.

Saving rates

“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,” the CNN reported quoting citing the Goldman’s report.

India downside risks

The report mentioned that the main downside risk for India's economic growth would be if the labour force participation rate does not increase. “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 exports

The report said net exports have also been a drag on India’s growth, because the country runs a current account deficit. The bank highlighted, however, that services exports have been cushioning current account balances.

India’s economy is driven by domestic demand, unlike many more export-dependent economies in the region, with up to 60% of its growth mainly attributed to domestic consumption and investments, the Goldman’s report said

Other global rating agencies like S&P Global and Morgan Stanley have also predicted that India is on course to become the third-largest economy by 2030.