As a report by BofA Securities, India is expected to emerge as the third-largest economy in the world in 2031 (fiscal 2031-32). India is likely to touch Japan’s nominal GDP (in USD) that year.
Key Points
- This projection has assumed 5% inflation, 6% real growth rate, and 2% depreciation.
- At present, India is the sixth-largest economy in the world by nominal GDP and the third-largest according to purchasing power parity (PPP).
- In the year 2017, BofA Securities had expected the Indian economy will achieve this feat by 2028. However, that has been pushed back now by 3 years due to the Covid-19 pandemic.
- The earlier forecast was based on three drivers – growing financial maturity; a coming demographic dividend; and the emergence of mass markets. These factors are still going strong.
- Besides, BofA Securities has identified two additional drivers – forex reserves buffer and softer real lending rates – that can help the country become the world’s third-largest over the years.
- Indranil Sen Gupta, India Economist at BofA Securities in a co-authored note with Aastha Gudwani, said that we have conservatively taken a lower 9% growth and pushed back by three years to 2031/FY32.
- Our projection of 6 percent real growth is actually below the 6.5 percent average since 2014 and our estimated 7 percent potential. 5 percent inflation (from 6 percent earlier) corroborates recent threshold inflation estimates. Finally, we have reduced average annual depreciation to 2 percent from 3 percent with the Reserve Bank of India (RBI) re-achieving adequacy of FX reserves.
Major concerns
As per BofA, rising prices of oil are a cause for concern and pose a risk to the projections.
Besides rising commodity prices, majorly crude oil, rising Covid-19 cases across the country, is another risk to economic recovery in the short-to-medium term.
