Source: EY.com, 18 January 2023
EY forecasts India to be the fastest growing large economy witnessing a six-fold increase in its per capita GDP that would cross US$15,000 by 2047
The report identifies eight key areas that will accelerate India’s growth over the next decade
Amid the ongoing megatrends, India would have a significant advantage owing to its strong domestic demand, digitalization, largest talent pool globally, financial inclusion, global competitiveness, and sustainability transition
Macroeconomic stability, ease of doing business, power sector reforms and greater energy independence are key to economic resilience
18 January 2023: EY, the leading professional services organization, today announced its growth projection for India that estimates Indian economy will reach GDP size of US$26 trillion (in market exchange terms) by 2047, the 100th year of the country’s independence. The per capita income is expected to increase to US$15,000, putting the country among the ranks of developed economies. The report, India@100: Realizing the potential of a US$26 trillion economy, was launched by Sri Ashwini Vaishnaw, Railway and IT Minister, Government of India on the sidelines of the World Economic Forum at Davos, Switzerland.
The report underscores the growth trajectory of the Indian economy that is projected to be the highest for any large economy over the coming decades. It also cites key enablers that will underpin the country’s development over the next 25 years that will unleash business opportunities across sectors and will significantly enhance India’s global competitiveness. It recommends ensuring macro-economic stability and resilience and continued thrust on reforms, which will be especially relevant in the backdrop of on-going geo-political conflicts, inflationary pressures and slowing global growth.
Launching the report, Sri Ashwini Vaishnaw, Minister of Railways, Communications and Electronics & Information Technology in Government of India, said, “In line with Prime Minister Narendra Modi’s vision, India has commenced its journey into ‘Amrit Kaal’, a uniquely auspicious period, representing India’s opportunity to herald a new world era. There is an unparalleled impetus on developing world-class infrastructure supported by growth and investment-oriented policies and reforms to establish India as a manufacturing and technology hub. Over the next decade, India will not only be the fastest growing economy but will also play an integral role in leading the world into a sustainable future.”
Carmine Di Sibio, Global Chairman and CEO, EY said “As this study shows, India offers a unique investment opportunity as the world struggles with heightened consumer demands and increased geo-political pressures. With the biggest talent pool, an accelerated pace of economic reforms, breakthroughs in energy transition, and rapid digital transformation, the long-term growth trajectory is clearly positive. India demonstrates immense potential and is positioned to make a truly transformative impact on the world stage.”
Rajiv Memani, Chairman and Managing Partner, EY India said “The entrepreneurial spirit of the private sector and policy measures of the last few years in the domains of fiscal, digital, physical infrastructure and social inclusion has uniquely positioned India for higher and sustainable growth. India is already among the fastest growing economies globally and is now at an inflection point where a new era of growth drivers will emerge. The next 25 years – the ‘Amrit Kaal’ – must bring an equal and strong focus on providing inclusive opportunities to all sections of the population, including women and those economically and socially disadvantaged.”
Using International Monetary Fund’s (IMF) medium-term projections and Organization for Economic Co-operation & Development (OECD)’s long-term forecasts, EY has made projections under alternative assumptions covering the period FY2023 to FY2061. For the period FY2023 to FY2028, IMF’s projections pertaining to India’s real and nominal GDP growth as well as its nominal savings rate have been used. With India’s real GDP growth forecasted to average 6.5% during this five-year period, it is expected to be moderately affected by global economic events as compared to the rest of the world. The long-term projections beyond FY2028 are based on the OECD’s methodology with suitable modifications made with respect to India’s growth profile.
Under the most preferred scenario, India is likely to cross the critical thresholds of US$5 trillion, US$10 trillion and US$20 trillion in market exchange rate terms in FY2028, FY2036 and FY2045, respectively.
EY has recognized eight key enablers of growth that will impact sectors across the economy and play a critical role in propelling the growth engine, as summarized below.
World’s Information Technology and Services Hub: With strong services exports at US$254.5b in 2021-22, India enjoys a strong foothold especially in the IT and BPO services exports. There is now an opportunity for the country to seize a higher share of transformational and more complex, expertise-based services to grow faster in the IT services sector. In non-IT services segment, India has an opportunity to fill in the talent gap as developed economies face a shortage of skilled talent due to demographic changes. This would be in areas such as education and healthcare, where services are increasingly being delivered over digital channels. India has the potential to become a services and technology talent hub for the world.
Digitalization: A Force Multiplier: The furious pace of digitalization in the country, including by the government, would result in multiple benefits of improving governance, financial inclusion and providing a framework for private players to reach new markets and create new products and services. The India Stack pioneered in the country is now the global benchmark for most countries. Following a spate of digitalization in the government and private sectors, the digital economy has grown by 15.6% over the period 2014 to 2019, 2.4 times faster than the growth of the Indian economy. Platforms like Open Credit Enablement Network (OCEN) and Open Network for Digital Commerce (ONDC) will democratize credit at scale and e-commerce market respectively.
Filing the credit gap to fuel growth: India’s private debt to GDP ratio remains one of the lowest among large economies, providing a headroom to drive 200 – 300 bps incremental annual GDP growth for the next 20-30 years to reach the current global average private debt to GDP levels. With accelerated credit growth and development of the corporate bond market and digital lending, an optimal financial architecture can help address the critical demand and supply gap in credit to individuals and Micro Small and Medium Enterprises (“MSMEs”), reduce cost of capital, and increase the share of private debt to sustain high growth.
Thriving entrepreneurship spurred by private capital: Start-ups have grown remarkably over the last six years, with India emerging as the third largest ecosystem for start-ups globally. PE/VC investments in India have touched record levels, reaching US$82b in FY21-22. The spurt of new-age companies across technology and other sectors on the back of rapid digitalization, large domestic market and strong capital availability will be instrumental in delivering relatively high and sustained growth to the Indian economy.
Reaping the demographic dividend: 25% of the incremental global workforce over the next decade will come from India. India also has the largest pool of English-speaking STEM graduates with an annual addition of 2.14 million (47% women) and 6.2 million healthcare professionals which includes doctors and nursing staff. This large young and working population will not only reinforce India’s competitive advantage in the services sector but also drive manufacturing and unleash a massive boom in domestic consumption patterns.
Making domestic manufacturing competitive: As global supply chains continue to diversify post pandemic, the government’s ‘Aatmanirbhar Bharat’ (self-reliant India) initiative in manufacturing has found further impetus through path-breaking policies such as the Production-Linked Incentives (PLI). Going forward, the country has the opportunity to move up the value chain through complex, high value product manufacturing and in emerging “sunrise” sectors of semiconductors, mobile phones and EVs, positioning India as a nucleus of manufacturing for the domestic and global markets.
Building the infrastructure of the future: In addition to massive upgrades in roadways, investments in physical infrastructure are being supplemented by IT-based ease-of-doing-business initiatives under the National Logistics Policy, with an aim to increase efficiency and lower the cost of movement. Impetus on modernizing railways and Dedicated freight corridors (DFCs) could considerably transform the movement of goods and exports, thereby lowering India’s high logistics costs, making cargo delivery more effective, economical, and reliable.
Transition to sustainable energy: The government has set a target to be net zero by 2070 and reduce carbon intensity by 45% by 2030 vis-à-vis 2005 levels. Renewable energy and development of green hydrogen can help India in its endeavour to achieve energy independence by reduced hydrocarbons import. The GoI has announced several progressive policies toward adoption of green hydrogen, with a goal to meet 10% of global hydrogen demand by 2030. The policy changes have spurred investments by both the private sector and state-owned enterprises providing optimism that round the clock emission-free energy may become a reality. The renewable energy capacity has increased from 40 GW in 2014 to 166 GW by 2022. As India scales up further, opportunities across generation capacity, equipment manufacturing, storage and transportation services and other allied areas are emerging for private enterprises to capture quickly and decisively.
As India marches forward into its Amrit Kaal (an auspicious period most conducive to achieving the country’s potential) and seizes the emerging opportunities across the above enablers, it will be critical to plan for factors that can impede progress. While the GoI has been strategic in its macro-fiscal response during the pandemic and the geo-political conflict, continued prudent macro-economic management focused on managing and stabilizing inflation and currency, ensuring predictability in policies and proactively de-risking the economy would remain important for India to continually attract domestic and global investors.
Simultaneously, enhancing ease of doing business, accelerating power sector reforms and energy independence, and enabling quality healthcare and education will not only increase business confidence but also ensure socio-economic development on a sustained basis.
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