India is on track to become the world’s third-largest economy by 2030-31: S&P

India is on track to become the world’s third-largest economy by fiscal 2030-31, powered by new growth in manufacturing, continued gains from agriculture, services and focus on energy security and biofuels, says a study by S&P Global.

The study says that although manufacturing value added accounts for a modest 17.2% of India’s real GDP, and the share of global manufacturing exports remains low, its goods exports more than doubled between 2009 and 2023 in USD terms. India’s share in global manufacturing exports has remained largely flat over the past decade, reaching only 1.8% in 2024. In contrast, its share in global service exports increased from 2.9% in 2014 to 4.3% in 2024. Further, the country’s share in global foreign direct investment (FDI) inflows has declined after a post-pandemic spike, from a high of 6.5% for FY2020- 21 down to 2.1% in FY2023- 24.

Manufacturing to power growth

India remains the world’s fastest-growing large economy despite a slowdown in real GDP growth in fiscal 2024-25. It has moderate dependence on external trade for growth, which cushions it somewhat from ongoing shifts in global trade and tariff policies. The threat of higher US tariffs on several Asian economies, including mainland China, Vietnam, Taiwan, Thailand and Bangladesh, could be leveraged to India’s advantage is accelerating its manufacturing growth and increasing its global export share, says the study - 'India Forward - Transformative Perspectives', done by experts from across S&P Global and Crisil.

The Global Manufacturing PMI Output Index compiled by S&P Global Market Intelligence says India topped the list in the past 12 months, averaging about 60 points, whereas major economies like the US, Eurozone, UK, China and Japan were performing in and around 50 points or less. An analysis of S&P Global Market Intelligence over time indicates that India has made notable progress in enhancing its competitiveness and making its manufacturing sector more attractive to investors. As economies adapt to evolving trade dynamics and tariff challenges, India can capitalise on this momentum for accelerated manufacturing growth and a greater global supply chain integration. A strategic shift towards local sourcing, proximity to end-markets, and enhanced regional Integration should attract additional investment to the sector, accelerating India’s technological advancement and manufacturing competitiveness, and creating additional high-quality manufacturing jobs.

Biofuels

The report observes that India’s burgeoning biofuel industry is at the forefront of the country’s efforts to transform its energy sector, balancing growth needs with a shift to sustainable energy sources amid rising environmental concerns. The transport sector, which is a significant source of emissions and a major consumer of imported fuels, is a key area where biofuels can have an immediate impact. Rather than focus solely on battery electric vehicles and hybrids, India is prioritising a ‘multi-fuel mix’ strategy. Original equipment manufacturers in India are actively exploring and developing biofuel technologies. Bioethanol production has taken off, and India is on track to achieve its 20% blending target. Scaling up of bio-compressed natural gas production and distribution, and its adoption in the transport sector, however, face multiple challenges and require a structured push, observes the report.

Oil & gas

S&P says the recent regulatory changes present an opportunity as India looks to enhance crude oil exploration and development to achieve self-sufficiency. The Oilfields (Regulation and Development) Amendment Bill, 2024 and other anticipated regulatory changes come at an opportune time for India amid increasing global uncertainty. The government and its national oil companies are both looking to ensure growth while improving revenue prospects. Meanwhile, with exploration activity dwindling around the world, many producers are looking at India, which presents an investment opportunity as a major growth market, says the report.