New Delhi: India will have the world’s second-largest economy after China by 2075 on the back of booming services exports, progress in innovation & technology and favourable environment for a private sector capital expenditure, global investment banking company Goldman Sachs has said in a research report.
However, it said that the declining labour force participation rate in India is a key downside risk. The report highlighted that the main downside risk would be if the labour force participation rate does not pick up. The labour force participation rate in India has declined over the last 15 years and the women’s labour force participation rate is significantly lower than men’s.
“India has taken a giant leap in terms of digitalization of the economy, both through wider penetration of the Internet and mobile Internet. But along with that you’ve had the unique identification number, or what is called the Aadhaar, the world’s largest biometric ID system, by which you are now able to verify identification of the 1.4 billion population both online and physically,” said Santanu Sengupta, Goldman Sachs Research’s India economist.
Sengupta added that Aadhaar makes public service delivery much easier and more targeted. It widens the credit net, leads to smaller businesses getting more credit, and that can provide an upside to growth from an increase in productivity. Capital investment is also going to be a significant driver of growth going forward, he added.
“Driven by favourable demographics, India’s savings rate is likely to increase with falling dependency ratios, rising incomes, and deeper financial sector development, which is likely to make the pool of capital available to drive further investment. On this front, the government has done the heavy-lifting in the recent past,” Sengupta added.
India’s growth until now has been mainly driven by domestic consumption as the main driver, around 55-60% of the overall economy, plus domestic investments. Over the last few years, those macro imbalances are reducing, and you’re getting less macro vulnerability from, one, inflation targeting and, two, through services exports, which is cushioning the current account balance, Goldman Sachs added.
Earlier, the World Bank said that it expects growth in India to slow down further to 6.3% in the financial year FY 2023/24 (April to March). The international financial institution attributes constrained private consumption due to high inflation as the main reason for slowdown.
Meanehile, the International Monetary Fund (IMF) had also cut India’s GDP growth forecast for the financial year 2023-24 by 20 basis points to 5.9%.
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Updated: 10 Jul 2023, 10:52 PM IST