Virendra Pandit
Mumbai: India is likely to emerge as the world’s third-largest economy by 2030, a leading think-tank said on Saturday.
The year 2020 has been bad to India as the United Kingdom pushed it back from the fifth (in 2019) to the sixth-largest economy. However, India will relegate the UK again to the sixth and race to emerge as the third-largest economy by 2030, media reported.
“India has been knocked off course somewhat through the impact of the pandemic. As a result, after overtaking the UK in 2019, the UK overtakes India again in this year’s forecasts and stays ahead till 2024 before India takes over again,” the London-based Centre for Economics and Business Research (CEBR) Ltd said in an annual report.
The UK may have overtaken India again in 2020 because of the weakness of the rupee. But the Indian economy will expand by 9 percent in 2021 and by 7 percent in 2022.
“This growth trajectory will see India become the world’s third-largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030,” it said.
It forecast that China will, in 2028, overtake the US to become the world’s biggest economy, five years earlier than previously estimated due to the contrasting recoveries of the two countries from the COVID-19 pandemic.
Japan would remain the world’s third-biggest economy, in dollar terms, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth.
The CEBR said India’s economy had been losing momentum even before the shock delivered by the COVID-19 crisis. The rate of GDP growth sank to a more than the ten-year low of 4.2 percent in 2019, down from 6.1 percent the previous year and around half the 8.3 percent growth rate in 2016.
“Slowing growth has been a consequence of a confluence of factors including fragility in the banking system, adjustment to reforms, and a deceleration of global trade,” it said.
The COVID-19 pandemic, the think tank said, has been a human and an economic catastrophe for India, with more than 140,000 deaths recorded as of the middle of December 2020.
While this is the highest death toll outside of the US in absolute terms, it equates to around 10 deaths per 100,000, which is a significantly lower figure than has been seen in much of Europe and the Americas.
“GDP in Q2FY20 (April-June) was 23.9 percent below its 2019 level, indicating that nearly a quarter of the country’s economic activity was wiped out by the drying up of global demand and the collapse of domestic demand that accompanied the series of strict national lockdowns,” it said.
As restrictions were gradually lifted, many parts of the economy were able to spring back into action, although output remains well below pre-pandemic levels.
An important driver of India’s economic recovery thus far has been the agricultural sector, which has been buoyed by a bountiful harvest.
“The pace of the economic recovery will be inextricably linked to the development of the COVID-19 pandemic, both domestically and internationally,” it said.
As the manufacturer of the majority of the world’s vaccines and with a 42-year-old vaccination program that targets 55 million people each year, India is better placed than many other developing countries to roll out the vaccines successfully and efficiently next year.
“In the medium to long term, reforms such as the 2016 demonetization and more recently the controversial efforts to liberalize the agricultural sector can deliver economic benefits,” the think tank said.
However, with the majority of the Indian workforce employed in the agricultural sector, the reform process requires a delicate and gradual approach that balances the need for longer-term efficiency gains with the need to support incomes in the short-term.
The government’s stimulus spending in response to the COVID-19 crisis has been significantly more restrained than most other large economies, although the debt to GDP ratio did rise to 89 percent in 2020.
“The infrastructure bottlenecks that exist in India mean that investment in this area has the potential to unlock significant productivity gains. Therefore, the outlook for the economy going forwards will be closely related to the government’s approach to infrastructure spending,” it added.