India could overtake US to become the world’s second-biggest economy by 2075: Goldman Sachs

July 24, 2023 (MLN): India is expected to become the world’s second-largest economy by 2075, surpassing the U.S., says Goldman Sachs.

The world’s fastest years of economic growth are likely already behind it, expansion is slowing as population growth weakens, according to Goldman Sachs Research.

Source: Goldman Sachs Research

But emerging economies, and powerhouses in Asia in particular, are forecast to keep catching up to richer countries.

As India’s population of 1.4 billion people becomes the world’s largest, its GDP is forecast to expand dramatically.

For India, a key to realizing the potential of that growing population is boosting participation within its labor force, as well as providing training and skills for its immense pool of talent, says Santanu Sengupta, Goldman Sachs Research’s India economist.

“Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies”, he added.

A country’s dependency ratio measures the number of dependents against the total working-age population. A low dependency ratio means that there are more working-age adults who can support the young and old.

Sengupta added that India has a window of opportunity to boost its manufacturing, services, and infrastructure sectors.

India’s government has prioritized infrastructure development, especially in building roads and railways. The country’s latest budget aims to continue the interest-free loan schemes to state governments for 50 years to encourage investments in infrastructure.

Moreover, India has made more progress in innovation and technology than some may realize.

Yes, the country has demographics on its side, but that’s not going to be the only driver of GDP.

Innovation and increasing worker productivity are going to be important for the world’s fifth-biggest economy.

In technical terms, that means greater output for each unit of labor and capital in India’s economy.

Goldman Sachs believes capital investment is also going to be a significant driver of growth going forward.

Driven by favorable demographics, 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.

On this front, the government has done the heavy lifting in the recent past. But given healthy balance sheets of private corporates and banks in India, they believe that the conditions are conducive for a private sector capex cycle.

Finally, favorable demographics will add to potential growth over the forecast horizon.

India’s large population is clearly an opportunity, however, the challenge is productively using the labor force, by increasing the labor force participation rate.

That will mean creating opportunities for this labor force to get absorbed and simultaneously training and upskilling the labor force.

Amount in USD Trillion

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