Goldman Sachs: India to Surpass US as World’s 2nd-Largest Economy by 2075

Goldman Sachs predicts that India is poised to become the world’s second-largest economy by 2075, surpassing Japan, Germany, and the United States. Currently ranked as the fifth-largest economy globally, India’s projected climb is driven by several factors, including its growing population, advancements in innovation and technology, increased capital investment, and rising worker productivity, as stated in a recent report by the investment bank.

According to Santanu Sengupta, India economist at Goldman Sachs Research, the country’s dependency ratio, which compares dependents to the total working-age population, is expected to be one of the lowest among regional economies in the next two decades. A low dependency ratio indicates a larger proportion of working-age adults capable of supporting the youth and elderly, presenting an opportunity for India to harness the potential of its rapidly growing population. To seize this opportunity, Sengupta emphasizes the need to enhance labor force participation, suggesting that India focuses on expanding manufacturing capacity, promoting service sector growth, and investing in infrastructure.

The Indian government has prioritized infrastructure development, particularly in constructing roads and railways, as demonstrated in its recent budget. The budget aims to continue interest-free loan programs for state governments over 50 years, encouraging investments in infrastructure. Goldman Sachs suggests that this is an opportune time for the private sector to expand manufacturing and service capacity, thereby creating more jobs and accommodating the substantial labor force in India.

India’s progress in technology and innovation is also driving its economic trajectory. According to Nasscom, a non-governmental trade association, the country’s technology industry revenue is expected to grow by $245 billion by the end of 2023. Various sectors, including it business process management and software products, will drive this growth.

Furthermore, Goldman Sachs highlights that capital investment will significantly influence India’s growth. The report states that India’s savings rate is likely to increase due to falling dependency ratios, rising incomes, and the development of a deeper financial sector. These factors are expected to enhance the availability of capital, thereby driving further investment in the country.

According to Goldman Sachs’ analysis, the combination of a growing population, advancements in technology, increased capital investment, and infrastructure development positions India to ascend the global economic ranks in the coming decades.

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Downside risks?

One potential challenge to Goldman Sachs’ projection lies in India’s labor force participation rate and whether it will increase at the rate the bank anticipates. The report highlights that the labor force participation rate has declined over the past 15 years. It notes that women’s participation rate in the labor force is significantly lower than that of men, with only 20% of working-age women employed. This low figure could be attributed to women primarily engaging in informal or piecework, which is not accounted for in standard employment measurements.

Another factor weighing India’s growth is its current account deficit, a drag due to net exports. However, Goldman Sachs points out that service exports have helped to mitigate the impact on current account balances.

India’s economy is primarily driven by domestic demand, setting it apart from many other export-dependent economies in the region. According to Goldman’s report, domestic consumption and investments contribute up to 60% of India’s growth.

In addition to Goldman Sachs, S&P Global, and Morgan Stanley have predicted that India will become the world’s third-largest economy by 2030.

India’s GDP expanded by 6.1% year-on-year in the first quarter, surpassing Reuters’ expectations of 5% growth. The full-year growth for India is estimated to reach 7.2%, compared to the 9.1% growth achieved in the previous fiscal year (2021-2022).