Move over America, China and India will have bigger economies by 2075, Goldman Sachs says

China’s economy is forecast to hit US$57 trillion by 2075, compared to India’s US$52.5 trillion and the United States’ US$51.5 trillion
The bank projects India’s growth to be powered by its large labour force, advances in technology and rising capital investment – at China’s expense

India

Business Insider

Published: 10:36am, 11 Jul 2023

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India’s economy is on track to surpass the United States by 2075 to become the world’s second-largest after China, according to Goldman Sachs.

The Wall Street bank projects that the South Asian nation’s gross domestic product will surge to US$52.5 trillion by then, compared with forecasts of US$57 trillion and US$51.5 trillion for China and the US, respectively. India’s growth will be powered mainly by its large labour force, advances in technology and rising capital investment, the bank said in a note.

At present, India ranks as the fifth-biggest economy in the world with a GDP of US$3.74 billion and a per capita income of US$2,600, according to the International Monetary Fund.

People crowd a street in Hyderabad on Monday. India recently overtook China to become the world’s most populous nation. Photo: AP

High-profile market experts such as American investor Ray Dalio and fund manager Mark Mobius have hailed the Asian nation as the next biggest investing opportunity. Even major companies including Apple, Tesla and SpaceX have leaned into the emerging economy as a hub for its supply chains instead of China.

“India has made more progress in innovation and technology than some may realise,” said Santanu Sengupta, Goldman Sachs’s chief India economist. “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 labour and capital in India’s economy.”

But India also faces hurdles in its journey towards economic superpower status. These include hefty import taxes, bureaucracy and red tape, and the dominance of domestic business tycoons – which make it harder for foreign companies to snap up any market share in key industries.

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According to Goldman’s Sengupta, capital investment, which refers to money invested in a business for its long-term growth, is going to be a key engine of India’s growth moving forward.

“Driven by favourable 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,” he said.

India’s Prime Minister Narendra Modi has been a cheerleader for capital expenditure, recently urging the nation’s private sector to boost investment and take advantage of the federal 2023-24 budget, according to the Hindu newspaper.

India’s large population is clearly an opportunity, however the challenge is productively using the labour force

Santanu Sengupta, Goldman Sachs’s chief India economist

Lastly, India has the opportunity to turbocharge its GDP by integrating its growing population into the labour force. The South Asian nation recently overtook China to become the world’s most populous nation, with 1.4 billion people.

“India’s large population is clearly an opportunity, however the challenge is productively using the labour force, by increasing the labour force participation rate. That will mean creating the opportunities for this labour force to get absorbed and simultaneously training and upskilling the labour force,” Sengupta said.

This article was first published by Business Insider