India on track to become the world’s third-largest economy by 2031

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Anand Sharma
  • Update Time : Tuesday, September 24, 2024
India

India Poised to Become World’s Third-Largest India, the world’s fastest-growing major economy, is on track to become the third-largest economy by 2031, according to the latest report from S&P Global. Currently ranked as the fifth-largest economy, India is expected to surpass Germany and Japan within the next decade, achieving a projected gross domestic product (GDP) of $10 trillion by the end of the 2020s. This extraordinary economic growth has positioned India as a rising global power, supported by a strong blend of consumption, investment, and government reforms.

In recent years, India’s economic trajectory has garnered significant global attention. S&P forecasts an impressive annual GDP growth rate of 6.7 percent through the decade. Government data from the 2023-24 fiscal year shows an 8.2 percent GDP expansion, following a robust 7.2 percent in the previous year. These figures cement India’s position as the fastest-growing major economy in the world, a title bolstered by other leading organizations.

Earlier this month, the World Bank raised its growth forecast for India to 7 percent for the current fiscal year, up from 6.6 percent. This upward revision was influenced by stronger-than-expected private consumption and investment, key drivers that have fortified the nation’s economic momentum. Similarly, the International Monetary Fund (IMF) echoed this optimism by adjusting its growth projection for India to 7 percent in July, crediting a rise in private consumption as a critical factor.

India’s economic ascension is driven by a combination of factors, most notably its expanding consumer base, increasing foreign investment, and structural reforms. With a population of over 1.4 billion, India’s domestic market is a powerful engine for growth. The rise of the middle class, coupled with increased consumer spending, has created a dynamic environment for businesses to thrive. Additionally, the government’s focus on economic liberalization, regulatory reforms, and infrastructure investment has made India an attractive destination for foreign direct investment (FDI).

India’s manufacturing sector, buoyed by initiatives like the “Make in India” campaign, has also contributed significantly to GDP growth. The government has sought to position India as a global manufacturing hub, offering incentives for industries ranging from electronics to textiles. By encouraging domestic production and reducing import dependence, India aims to increase its global competitiveness.

Another crucial element of India’s growth story is the nation’s ability to integrate into global value chains. S&P notes that India’s ambitious goal of reaching $1 trillion in merchandise exports by 2030 will require strategic diversification and deeper integration into these value chains. The government has already taken steps to improve its trade infrastructure, streamline regulations, and promote high-tech industries such as electronics and pharmaceuticals to achieve this target.

A key pillar of India’s economic vision is the development of world-class infrastructure, particularly along its coastlines. Last month, the Indian government approved plans to build a large port on the western coast, in Maharashtra. This new port will be a critical node in global trade networks, connecting India with Russia, Central Asia, and Europe through the International North-South Transportation Corridor (INSTC). The INSTC, a strategic route passing through Iran, is expected to increase trade flow between India and markets in Eurasia, complementing China’s Belt and Road Initiative (BRI).

India’s presence in the region is further strengthened by its involvement in the development of Chabahar Port in the Gulf of Oman. Chabahar offers India a strategic foothold in a highly contested region, providing a direct trade route to various emerging markets that are also sought after by China. This initiative not only boosts India’s trade capacity but also enhances its geopolitical influence across the Middle East and Central Asia.

As India aims to increase its exports, upgrading its port and logistical infrastructure will be vital. The country’s long coastline, which stretches over 7,500 kilometers, remains underdeveloped compared to its economic potential. To overcome these bottlenecks, S&P recommends reforms to streamline business transactions and logistics, alongside more private-sector investment in infrastructure projects. Reducing reliance on public capital is seen as a necessary step to sustain long-term growth.

India’s rapid industrialization and urbanization have brought environmental challenges, with air pollution and climate change ranking among the most pressing. In response, the Indian government has embarked on a mission to accelerate its energy transition. S&P’s report emphasizes that a successful transition to renewable energy is crucial to sustaining India’s growth while mitigating environmental risks.

India’s renewable energy capacity is expected to more than triple to around 500 gigawatts (GW) by 2030, as the country seeks to diversify its energy sources. Investments in solar and wind power, along with enhanced grid infrastructure, form the backbone of this transition. India is also exploring low-emission technologies such as green hydrogen, green ammonia, small nuclear reactors, and carbon capture, utilization, and storage (CCUS) to reduce its carbon footprint and meet climate targets.

The transition to renewable energy is not only an environmental imperative but also an economic opportunity. India’s vast renewable energy potential, combined with the government’s pro-climate policies, has attracted significant investment in clean energy technologies. This transition is expected to create millions of jobs, reduce energy import dependence, and position India as a global leader in sustainable development.

The agricultural sector remains a critical component of India’s economy, contributing 18 percent of GDP and supporting 47 percent of the population. However, to keep pace with the nation’s overall economic growth, the agriculture sector will need to adopt advanced technologies and modern policies. S&P notes that improving agricultural infrastructure and productivity will be essential for the sector’s sustainability.

Artificial Intelligence (AI) is predicted to play a transformative role in India’s future, particularly in sectors such as agriculture, manufacturing, and healthcare. According to NASSCOM, India’s AI market is expected to grow by $17 billion-$22 billion by 2027, with investment opportunities of around $4 billion. AI-driven innovations, such as precision farming and smart supply chains, are expected to revolutionize agriculture, increasing efficiency and reducing costs.

India’s journey to becoming the world’s third-largest economy is marked by ambitious reforms, strategic investments, and global integration. While challenges remain, particularly in infrastructure development, energy transition, and agricultural modernization, the nation’s outlook is overwhelmingly positive. With projections of a $10 trillion economy by 2031, India is poised to reshape the global economic order, becoming a central player in trade, technology, and sustainability.

As India navigates its growth path, maintaining a balance between rapid industrialization and environmental sustainability will be key to ensuring long-term prosperity. If the nation continues on its current trajectory, it will not only achieve its economic milestones but also emerge as a global leader in innovation and sustainable development.

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Avatar photo Anand Sharma, a Special Contributor to Blitz is research-scholar based in Nigeria.

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