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India Will Grow to Become the World’s Third-Largest Economy By 2027

India Will Grow to Become the World’s Third-Largest Economy By 2027

Various global projections indicate that India is committed to overtaking Japan and Germany, positioning itself as the world’s third-largest economy by 2027, according to a note published by analysts at the investment banking firm Jefferies yesterday.

One decade ago, India ranked as the ninth-largest economy globally, but recent data indicates it has climbed to the fifth position, with a nominal GDP of $3.4 trillion.

A forecast reported on by Business Insider is based on India’s current economic growth trajectory and a series of structural reforms that have significantly improved its macroeconomic landscape.

Confederation of Indian MSME in ESDM & IT

forecasts India’s GDP to reach $5 trillion within the next four years, aiming for nearly $10 trillion by 2030. This fiscal expansion is supported by an anticipated annual GDP growth rate of 6% over the next five years, surpassing the growth rates of most large economies. Many investment firms predict significant growth in the Indian equity markets.

We feel that factors contributing to this outlook include structural domestic flows and the potential for large unicorn listings. “If India (6.3%) and China (4.2%) are left out of the top ten largest economies, the next in terms of growth rates is Canada at 1.6%. Thus, the gap between the top two and the rest is substantial.”

Factors Contributing to India’s Economic Growth

The growth of India’s economy is primarily due to a range of reforms implemented under Prime Minister Narendra Modi’s leadership— “the world’s most popular leader.” These reforms have fundamentally altered India’s economic environment, boosting its stability and appeal to international investors. Notable among these reforms is the introduction of the Goods and Services Tax (GST), which unified the country’s tax regime, simplifying business operations nationwide. Additionally, the enactment of new bankruptcy laws has made resolving insolvency more efficient, while the demonetization campaign was designed to tackle corruption and reduce the prevalence of illicit money.

 ‘Make in India initiative’ initiated in September 2014—dubbed 1.0—has been crucial in catalysing investment, driving innovation, advancing skills, and establishing advanced manufacturing infrastructures. However, they argue that the next phase, ‘Make in India 2.0’, which targets an investment-friendly ecosystem, infrastructure modernization, and the opening of new sectors to foreign direct investment (FDI), should draw lessons from its predecessor.

They point out that 1.0’s infrastructure push was predominantly driven by government action. In contrast, 2.0 is expected to galvanize successful private sector investments, both from within India and abroad.

“For example, the large impetus and investment in infrastructure during the 1.0 initiative were mostly government-led. The forthcoming 2.0 initiative would help spur successful private investments, both domestic and foreign, going forward.”

This is interesting because it underscores a strategic shift in economic policy from public to private-led growth, reflecting a maturing of India’s market economy and increased confidence in its private sector to drive sustainable development and innovation. “Improvements in the ease of doing business are a critical factor in India’s economic growth”, said Parulekar.

He added, “Simplification and rationalization of existing processes have propelled India to the 63rd position in the World Bank’s Ease of Doing Business ranking in 2020.”

As a result of such concerted efforts, India has witnessed a significant increase in FDI, registering its highest ever annual FDI inflow of $84.8 billion during the financial year 2021-2022, a substantial rise from $45.15 billion in 2014-2015 and a multi-fold increase from $ 2.2 billion two decades back in 1999-2000, according to government data. Accordingly, the last six financial years have seen FDI inflows worth $435.1 billion, which constitutes 55% of the FDI received in the previous two decades.

Subsequently, it is possible to conclude that multinational corporations might diversify their operations by investing in India’s expanding sectors, such as technology, manufacturing, and services in the near future. This diversification could shift the geo-economic landscape, establishing India as a new centre for innovation and industrial growth.

“Strategic partnerships between India and other nations could multiply, leading to increased trade agreements that foster closer economic ties,”. “The reconfiguration of global supply chains might also ensue, with India potentially becoming a pivotal figure in both regional and global logistics, benefiting from its strategic geographic location and extensive skilled workforce,”.

The rise of India’s economy signals the emergence of a multipolar economic world order characterized by simultaneous collaboration and competition, with the far-reaching impact of its growth felt widely.

In this context, leadership and strategy must evolve in response to India’s burgeoning economic influence. For global leaders and decision-makers, this means reassessing and realigning their international strategies to include India’s economic trajectory as a central element of global commerce and policy.

Corporations and governments alike will need to prioritize understanding India’s market dynamics, regulatory environment, and cultural nuances to effectively engage and collaborate. This evolving landscape calls for visionary leadership that can embrace the nuances of India’s economy and leverage its growth for global strategic advantage.

Evidently, the potential for India to act as a catalyst for economic growth extends beyond its borders, presenting a compelling case for enhanced regional collaboration and economic diplomacy. The strategic implications are clear: those who anticipate and adapt to India’s rise will be well-positioned to thrive in the unfolding new global economy.

By Jairaj Srinivas,
Director General
Confederation of Indian MSME in ESDM & IT