India is set to become the Third-largest Economy by 2030-31

India is on track to become the third largest economy by fiscal 2030-31, driven by a robust projected annual growth rate of 6.7%, the credit rating agency S&P Global said in its report called India forward Emerging Perspectives. 

Factors responsible for becoming the third-largest economy.

1. Strong Growth Momentum

• In the post-pandemic world, India has emerged as the fastest-growing large economy, with healthy medium term prospects.
• In the fiscal year to March 2024, growth surprised on the upside at 8.2%, exceeding the government’s earlier estimate of 7.3%.
• India has consistently experienced the highest private sector PMI (Purchasing Managers Index)  output expansion worldwide over the past year.

2. Budget Impact

• The Union Budget 2024–25, presented July 23, maintained India’s infrastructure buildout momentum, with capex budgeted to grow 17.1% in the current fiscal year.
• Additionally, reduction of import duties on critical minerals and raw materials should improve domestic value addition and may help private investments.

3. India’s rising contribution to global growth

• According to S&P Global Market Intelligence projections, the size of the country’s nominal GDP would nearly double to over US$7 trillion by fiscal 2030–31 from US$3.6 trillion in fiscal 2023–24.
• This would make India the third-largest economy in the world, raising its share in global GDP from 3.6% to 4.5% and lifting its per-capita income to the upper-middle-income group.

4. External Buffers for future uncertainties

• India’s share in world real GDP will rise from 3.6% in 2023 to 4.5% in 2030.
• Robust buffers against external headwinds Strong external buffers are crucial in the face of growing global risks stemming from geopolitical uncertainties and trade disputes.
• India’s external buffers are resilient compared with those of other nations, thanks to the country’s sharply narrowed current account deficit (0.7% of GDP in fiscal 2023–24 against 2.0% of GDP in fiscal 2022–23), strong foreign exchange reserves of over US$650 billion and ongoing fiscal consolidation.

5. Capital Inflows

• The recent inclusion of India’s bonds on global bond indexes should support capital inflows into the economy’s financial markets.
• With the inclusion, gross portfolio inflows are estimated to be between US$20 billion and US$30 billion over the next two years, which is marginal compared with the size of the overall bond market.

7 decisions drive for India’s energy transition for future rise in economy

• 1) Make the radical choice of gas in power mix
• 2) Advance critical mineral security
• 3) Accelerate power sector reforms
• 4) Boost energy efficiency and productivity
• 5) Build strong clean energy supply chains
• 6) Mobilize green finance
• 7) Drive innovation and technology development

Future AI Ambitions Help Economy

The Indian AI market is expected to grow to between US$17 billion and US$22 billion by 2027, attracting investments of US$4 billion and becoming the third-largest talent base with an expected 1.25 million to 1.35 million people with AI skills.