India’s Economy in 2023
As of 2023, India is the world’s fifth largest economy, with a GDP of $3.5 trillion. India has been among the fastest growing major economies in recent years with an average annual GDP growth rate of 6-7% between 2015 and 2020. However, growth slowed to 4.5% in 2020-21 because of the COVID-19 pandemic. India is expected to bounce back with over 7.5% growth in 2023-24 backed by a recovery in investment and consumption demand, according to the IMF.
Key Drivers of Future Growth
India has several favourable conditions and emerging trends that are likely to propel rapid, sustainable and more inclusive economic growth over the next 5 decades.
Demographic Dividend: India has one of the youngest populations in the world with a median age of 27 years. It is projected to provide the world’s largest workforce over the next 20 years, benefitting from rapid urbanisation and rising education levels. Around 92% of India’s working-age population will be skilled by 2047, compared to just 42% in 2018 aided by the New Education Policy focused on vocational training and adult education.
Rising Investments: India has been steadily rising on the global scene, attracting higher foreign investments with government initiatives like Make in India, Digital India and various production-linked incentives. Total investments could rise from around 30% of GDP currently to over 45% by 2040. Flagship schemes such as PM Gati Shakti National Master Plan aim to boost multi-modal infrastructure connectivity, leading to enhanced efficiencies, productivity and investments across sectors.
Thriving Private Sector: India is home to over 100,000 startups, including over 150 unicorns with many homegrown champions across manufacturing and services. Increased digital adoption, financial inclusion initiatives, global trade integration and industry-friendly policies will enable the private sector to catalyse growth across urban and rural areas over the next two decades.
Infrastructure Creation: India plans to invest over $2.7 trillion between 2023-2030 on mega infrastructure projects across highways, railways, power generation & distribution, gas pipelines and urban rejuvenation programmes as part of the National Infrastructure Pipeline and Gati Shakti initiatives.
Global Integration: India has signed trade deals with Australia, UAE and working on agreements with the UK, Canada and EU focused on greater mobility of professionals and students, boosting services trade. It is also strengthening regional connectivity and cross-investments with neighbours under initiatives such as BIMSTEC, or Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, and I2U2—which is a grouping of India, Israel, the United Arab Emirates, and the United States—to amplify economic ties leveraging geographical proximity.
Sectoral Growth Projections
Based on the above drivers, the growth opportunities and projections across major sectors over the next 25 years have been outlined below:
Manufacturing Resurgence
India’s manufacturing sector holds tremendous potential to emerge as an engine of economic growth contributing up to 30% of GDP by 2047, in line with the Make In India goals. The PLI scheme offers financial incentives worth $26 billion by 2030 across 14 major sectors, from electronics, automobile and pharma to textiles and food processing to enhance domestic capabilities. Competitive labour costs combined with cluster-based infrastructure development across industrial corridors and rising local demand positions India as an alternate manufacturing destination for multinationals seeking to diversify supply chains. Total investments in the sector could exceed $1 trillion by 2030, leading to over 30% Compounded Annual Growth Rate in exports. Employment generation is projected to triple from the current 50 million to over 150 million by 2040, benefitting from industrialisation in coming decades.
Thriving Services
Services sector will continue its rise. It is expected to contribute about 60% of India’s GDP by 2040, which will be among the highest globally. Sub-sectors like IT and IT-enabled services, telecom, banking, insurance, tourism, education and healthcare services can sustain over 8% annual growth rates boosted by India’s skilled English-speaking workforce, booming consumer class and increased technology adoption.
India’s IT industry revenue could exceed $650 billion by 2030, benefitting from high global demand for software services and digital transformation across verticals. Telecom sector growth will speed up with the 5G and 6G rollout over the next decade, enabling digital connectivity and innovations serving as backbone for Digital India.
Financial services sector growth would be aided by rising incomes, higher penetration of formal credit channels and proactive policy efforts on financial inclusion of MSMEs. Insurance market is projected to reach $250 billion in retail premiums while bank credit may see 3x expansion by 2030 supported by a conducive regulatory ecosystem.
The education sector has witnessed a surge in e-learning solutions, vocational training and public-private partnerships in R&D activities to equip over 500 million skilled workforce by 2030, catering to domestic and global economy. By tapping the medical tourism and wellness industry, India can witness massive expansion in healthcare services over the next 10 years.
Infrastructure Building
Central government capital expenditure on infrastructure could exceed Rs 30 lakh crore between 2023 and 2028 on diverse projects spanning transport networks expansion, power sector investments, clean energy capacities, digital connectivity and urban rejuvenation programmes filtering down to construction demand uptick across industrial, commercial and residential segments over the next decade.
Annual infrastructure spending would average over $250 billion between 2025 and 2040 centred around PM Gati Shakti National Masterplan, aiming for integrated planning and synchronised infrastructure development across 1,700 projects.
The transport infrastructure augmentation across rail, roads, ports and waterways network will halve freight and passenger traffic times, reduce fuel consumption by 15-20% benefitting from multi-layer planning of connectivity corridors. Government’s capital outlay and viability gap funding for infrastructure serves as a growth catalyst for private sector investments across large foundation laying down payments.
For sustainable growth, 50% of India’s electricity capacity addition would be via non-fossil fuel sources aligned to the goal of achieving 500 Gigawatts renewable energy by 2030 to meet half of total capacity through green routes. Development of new industrial cities, specialised manufacturing clusters and economic zones integrated with multimodal transport links and renewable power will shape India into a global manufacturing and innovation hub over the long term.
Agriculture Modernisation
India’s agriculture sector is undergoing steady transformation via significant productivity gains, efficient irrigation techniques, integrated farming practices, organised supply chains and adoption of agriculture-technology, which aim to raise farm incomes on a sustainable basis contributing up to 18% of GDP by 2040.
Thrust on micro-irrigation coverage to rise from 10 million hectares currently to 25 million hectares by 2030, combined with precision-agriculture adoption techniques, can raise major crop yields substantially while rationalising cultivated area. Effective implementation of reforms spanning unified national marketplaces for agri-trade, legalisation of contract farming and private sector investments in supply chain along with adequate price support can enable stable farmer incomes insulating against output price risks and climate uncertainties over the long run.
Livestock, horticulture and fisheries sectors also provide tremendous scope for investments in productivity, value addition by food processing companies benefitting from diversified export opportunities that can triple agri-exports to over $100 billion by 2030 benefitting farmers immensely while enhancing India’s farm sector competitiveness globally across select crops, spices, marine products and organic segment.
Overall Growth
Effective policy action across above sectors can stimulate GDP growth to average 7-8% over 2023-2040, facilitating the transition to a high middle-income economy by 2032 and doubling aggregate income per capita to $5000 by 2040 benefitting from a limited period demographic dividend till 2050.
Such rapid expansion would make India the world’s third-largest economy nearing $7 trillion by 2031 and potentially crossing $20 trillion by 2047 on sustained investments in human capital and infrastructure. Significant public and private capital formation is essential to uplift living standards for all sections via affordable healthcare, financial inclusion, efficient transportation solutions and digital economy ecosystem.
With over 90% of India’s working-age population projected to be skilled by 2050 and increased women’s workforce participation, India will have abundant economic prospects to transition into a high productivity-high income country over the coming decades.
Critical Enablers
Realising sustained 7-8% GDP growth for India over the next 25 years calls for effective policy initiatives and continued reforms across following dimensions:
Incentives for Industrial Capabilities: Providing performance-linked incentives for major manufacturing sectors in electronics, textiles, and food processing will be crucial to expand export competitiveness. Cluster-based special economic zones and industrial digital transformation via emerging technologies adoption are imperative for job-creation.
Demographic Dividend and Human Capital: Leveraging India’s young workforce causes increasing public health spend from 1% to 3% of GDP by 2030, ensuring affordable and accessible healthcare for all. Implementing the vision of universal school education and initiatives like Gati Shakti University grants for priority science and technology domains will amplify innovation and skill-building.
Infrastructure Boost: The government’s capital investments in multi-modal connectivity projects integrated through the Gati Shakti portal aims at synchronised infrastructure building across over 1700 projects expanding economic opportunities to the grassroots, spurring growth equitably.
Technology Adoption: India must rapidly increase digital penetration currently at 50% to over 90% population coverage by 2030 by providing affordable access to digital public goods in regional languages which can significantly improve ease of living, efficiency of welfare schemes and extend market access to remote corners.
Sustainability Focus: Adopting sustainable mobility pathways, renewable energy usage targets across electric vehicles, green hydrogen and localising production for chemicals and electronics can provide resilience to energy price uncertainty triggered by geo-political events. Implementing climate resilient urban development will also insulate populations from extreme weather events.
Financial Inclusion: Expanding access and usage of formal credit, insurance channels and digital payments ecosystem for India’s large unbanked population will channel domestic savings into productive investments more effectively. Extending integrated financial services covering credit, insurance, pensions, particularly for workers in informal economy, will propel formalisation.
Institutional Reforms: Rapid economic growth needs efficient public delivery systems via institutional reforms across judiciary, police, bureaucracy combined with extensive technology adoption and data-driven performance management for transparency and accountability.
Risk Monitoring
Prudent fiscal policies, expanding social security coverage and rapid technology adoption across sectors will help address periodic downside risks preventing sustained rapid growth.
Countering global demand slowdown requires counter-cyclical expenditures by the government, combined with policies encouraging domestic consumption and attracting export-oriented FDI inflows. Rapidly changing global trade policies cause aligning India with high-quality certifications, becoming part of select GVCs by forging strategic partnerships.
Climate adaptation strategies covering irrigation, coastal areas, climate-sensitive sectors are vital to deal with risks of climate change given India’s high exposure. In addition, clean energy investments, energy efficiency mandates and EV adoption programs can provide resilience to fossil fuel price volatility.
Expanding cyber security systems, upgrading critical Information and Communication Technology infrastructure proactively, and implementing stringent personal data policies will counter rising threats of large-scale disruptive cyber attacks.
Developing heat and drought resilient crop varieties, R&D investments, micro irrigation coverage expansion and distribution efficiency enhancement are essential to counter periods of water stress constraining agriculture output.
By pursuing economic reforms decisively, adopting emerging technologies proactively and monitoring risks judiciously, India seems well within reaching its aspirational growth targets, translating into substantive welfare gains for the entire population over the coming decades. Real GDP growth averaging 7-8% on a sustained basis from 2023 to 2047 can facilitate India’s transition into a developed nation status by 2047 benefitting immensely from its demographic dividend.
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