India will be the fastest-growing G-20 economy over the next few years, with its growing manufacturing and infrastructure sectors, according to Moody's Investors Service.

India's rising per capita and disposable income in the hands of a growing population, and the government's supportive policies will propel consumption at a compound annual growth rate (CAGR) of 3%-12% until 2030, says Moody's.

These projections come weeks after India's population crossed 1.43 billion, according to the United Nations (UN), surpassing China's, and making it the most populous country globally and home to one-fifth of the world's inhabitants.

"With the UN forecasting India's population to continue to rise over the next few decades before plateauing, supportive demographics present attractive dividends for India to tap," says Moody's.

India also faces social challenges in the form of unequal access to quality education and a lack of good jobs for graduates which could dampen the extent to which a young and growing population feeds through into stronger consumption, it warns.

India will achieve significant scale across multiple sectors by 2030, according to the credit rating agency. Leading companies will invest around $150 billion in additional capacity, requiring access to multiple funding sources, but most rated companies can tolerate a rise in debt, says Moody's.

While demand across the manufacturing and infrastructure sectors will grow 3%-12% annually for the rest of the decade, India's capacity will still rank well behind China's by 2030, the rating agency notes.

A large young and educated workforce, increasing nuclear families and urbanisation will fuel demand for housing, cement and new cars, says Moody's. "Government infrastructure spending will bolster steel and cement, while India's net-zero commitment will drive investment in renewable energy. Larger production capacity will raise rated companies' competitiveness in these sectors," it explains.

India's per capita consumption for major manufacturing and infrastructure sectors remains lower than G-20 emerging market peers, illustrating low penetration rates and immense growth potential, notes Moody's.

"Creation of jobs in services will aid an expansion in disposable incomes, supporting consumption, and spur investments in India's manufacturing and infrastructure sectors. Leading companies in the manufacturing (steel, cement, oil and gas, and automotive) and infrastructure (aviation and power) sectors will build new capacities through the end of the decade. While China will retain its status as the world's largest manufacturer, India – the world's office – will also become a major manufacturer," the credit rating firm says.

It, however, cautions that reform and policy barriers could hamper investment. Despite the Indian economy's strong potential, there is a risk that the pace of investment in India's manufacturing and infrastructure sectors could slow because of limited economic liberalisation or slower policy implementation, warns Moody's.

Steel demand in India will climb at a 7% CAGR until 2030, fuelled by continuous, large infrastructure investments as well as increasing demand from the auto sector, according to Moody's.

"To meet this demand, Indian steelmakers will add around 100 million metric tonnes (mt) per annum of capacity by the end of the decade, representing two-thirds of the industry's existing annual 150 mt capacity," Moody's says, adding that steelmakers will incur $50 billion to $75 billion in capital expenditure to add the new capacity.

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