In November 2017, just around the time India had overtaken Brazil and Russia to emerge as the second largest economy in the BRICS grouping after China, Indranil Sen Gupta and Aastha Gudwani, both economists at the brokerage firm, BofA Securities India (BofAS India), had pointed out that India could emerge as the third largest economy in the world by 2028.

BRICS is the economic bloc consisting of Brazil, Russia, India, China, and South Africa. Owing to lower labour and production costs, economists have been of the view that BRICS would be the dominant global suppliers of raw materials and manufactured goods and services by 2050.

Coming back to the India forecast for 2028, the BofAS India economists had counted three key drivers for the projected growth: one, coming demographic dividend which was expected to reduce dependency ratios while raising savings and investment rates. Two, growing financial maturity due to financial liberalisation and inclusion which was seen to structurally lead to lower lending rates. And, three, the emergence of mass markets with increasing incomes and affordability.

Together, in Sen Gupta and Gudwani’s view, these three drivers were seen to support an expected 7% real GDP growth in India. However, with the Covid-19 shock during 2020, the duo now expects a three-year delay in India’s emergence as the world’s third largest economy to 2031 or FY2032, from the earlier 2028.

In their view, India should touch Japan's nominal GDP (in U.S. dollar terms) by 2031 if 9% GDP growth is clocked; and if the Indian economy grows at a rate of 10%, then it could occur a year early, i.e. by 2030. “This assumes an entirely realistic 6% real growth, 5% inflation and 2% depreciation (in currency),” Sen Gupta and Gudwani say.

In their latest projection, the drivers flagged in 2017 continue to be relevant. While the economists find all three phenomena strengthening, just as importantly, they see two further catalysts that would support structural change. “The Reserve Bank of India (RBI) has effectively attained a silent revolution in re-achieving adequacy of foreign exchange (FX) reserves after almost eight years,” the duo note. “This should help stabilise Indian Rupee (INR) by de-risking the Indian economy from global shocks.”

financial maturity

India to be the third largest economy by 2031: Report