India to be world’s third-largest economy by 2030, says S&P Global Ratings

INDIA will remain the fastest-growing major economy for at least the next three years, setting it on course to become the world’s third-largest economy by 2030, S&P Global Ratings said in a report.

S&P expects India, currently the world’s fifth-largest economy, to grow at 6.4 per cent this fiscal year, and estimates growth will pick up to 7 per cent by fiscal 2027. In contrast, it expects China’s growth to slow to 4.6 per cent by 2026 from an estimated 5.4 per cent this year.

India’s gross domestic product grew a bigger-than-expected 7.6 per cent in the second quarter of fiscal 2024, data showed last week. This prompted several brokerages to raise their full-year estimate.

However, S&P, which had raised its forecast even before the latest data, said India’s growth will depend on its successful transition to a manufacturing-dominated economy from a services-dominated one.

“A paramount test will be whether India can become the next big global manufacturing hub, an immense opportunity,” S&P said in its Global Credit Outlook 2024 report on Monday (Dec 4).

While Prime Minister Narendra Modi’s government has been driving domestic manufacturing through the “Make in India” campaign and production-linked incentives (PLIs), the share of manufacturing in the economy is still roughly 18 per cent of GDP.

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In contrast, services account for over half of India’s GDP.

Still, India’s services activity in November grew at the slowest pace in a year, as high inflation expectations dampened business sentiment. The S&P Global India services purchasing managers’ index, which helps investors assess business conditions and economic backdrop, declined to 56.9 last month from 58.4 in October.

The services sector is facing risks from weak global demand and elevated interest rates. The survey showed a “widespread slowdown” in rates of growth for new orders and output across the four broad areas of the service economy. Overseas demand for Indian services improved, but the rate of increase in new export orders was the slowest since June, S&P pointed out. 

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S&P said that developing a strong logistics framework is key to becoming a manufacturing hub, and that India also needs to “upskill” its workers and increase female participation in the workforce to realise its “demographic dividend”.

India has one of the youngest working populations in the world, with nearly 53 per cent of its citizens under the age of 30.