India set to overtake Japan as Asia's second largest economy by 2030: S&P

India, the world's fifth largest economy in the world, is likely to overtake Japan to become the world's third-largest economy, with a GDP of $7.3 trillion, by 2030, said S&P Global Market Intelligence, in its latest issue of PMI.

After two years of rapid economic growth in 2021 and 2022, the Indian economy has continued to show sustained strong growth during the 2023 calendar year.

India's gross domestic product (GDP) is expected to grow 6.2-6.3% in the fiscal year ending in March 2024, being the fastest-growing major economy this fiscal year. Asia's third-largest economy grew by a stellar 7.8% in the April-June quarter.

"The near-term economic outlook is for continued rapid expansion during the remainder of 2023 and for 2024, underpinned by strong growth in domestic demand," said S&P Global.

The acceleration of foreign direct investment inflows into India over the past decade reflects the favourable long-term growth outlook for the Indian economy, helped by a youthful demographic profile and rapidly rising urban household incomes.

"India's nominal GDP measured in USD terms is forecast to rise from $3.5 trillion in 2022 to $7.3 trillion by 2030. This rapid pace of economic expansion would result in the size of the Indian GDP exceeding Japanese GDP by 2030, making India the second largest economy in the Asia-Pacific region," it said.

By 2022, the size of the Indian GDP had already become larger than the GDP of the UK and France. By 2030, India's GDP is also forecast to surpass Germany.

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The US at present is the world's largest economy with a GDP of $25.5 trillion. It makes up for a quarter of the world's GDP. China is the second largest economy with a GDP size of about $18 trillion, which is almost 17.9% of the world GDP. Japan is a distant third with $4.2 trillion GDP, followed by Germany with $4 trillion GDP.

S&P Global said the long-term outlook for the Indian economy is supported by a number of key growth drivers.

"An important positive factor for India is its large and fast-growing middle class, which is helping to drive consumer spending. The rapidly growing Indian domestic consumer market as well as its large industrial sector have made India an increasingly important investment destination for a wide range of multinationals in many sectors, including manufacturing, infrastructure and services," it said.

The digital transformation of India that is currently underway is expected to accelerate the growth of e-commerce, changing the retail consumer market landscape over the next decade. This, S&P Global said, is attracting leading global multinationals in technology and e-commerce to the Indian market.

"By 2030, 1.1 billion Indians will have internet access, more than doubling from the estimated 500 million internet users in 2020," it said.

"The rapid growth of e-commerce and the shift to 4G and 5G smartphone technology will boost home-grown unicorns like online e-commerce platform Mensa Brands, logistics startup Delhivery and the fast-growing online grocer Bigbasket, whose e-sales have surged during the pandemic.

The large increase in FDI inflows to India, which has been evident over the past five years, is also continuing with strong momentum, even during the pandemic years of 2020-2022.

"India's strong FDI inflows have been boosted by large inflows of investments from global technology MNCs such as Google and Facebook that are attracted to India's large, fast-growing domestic consumer market, as well as a strong upturn in foreign direct investment inflows from manufacturing firms," it said.

Overall, India is expected to continue to be one of the world's fastest-growing economies over the next decade.

"This will make India one of the most important long-term growth markets for multinationals in a wide range of industries, including manufacturing industries such as autos, electronics and chemicals to services industries such as banking, insurance, asset management, health care and information technology," said S&P Global.