India’s economic juggernaut gains momentum; world to follow

India, the fifth-largest global economy, will soon become the third-largest and then the second-largest economy by 2075 redefining a new world order.   

India’s growing significance as an economic juggernaut and as the largest democracy in the world has already been embraced by the global west including the USA and the countries in Europe.

Not only the USA and European countries but also many other countries and organizations across the world are looking into reforming their policies and approaches when interacting with India.  

This was evident in an early July report from the Jacques Delors Institute titled ‘India and the European Union in 2023: Building A Closer Economic Relationship’ which was presented in the European Parliament.

It said that a successful trade relationship between India and the European Union holds the potential to significantly reshape the global economic order after finding out common ground on various issues.

 “The EU and India have a unique opportunity in the 2020s to deepen their partnership and shape the global agenda on trade, digitalization, climate change and security," the report written by Nicolas Köhler-Suzuki, a trade policy adviser and researcher with Jacques Delors Institute, added.

The report further said that the EU-India relationship could be a major contributor to the European Commission’s desire to ‘de-risk’ the EU’s trade and investment relationships.

“India can provide the EU with a valuable trade partner and access to a large and growing market, while the EU has the potential to provide India with the investment, technology, and market access it needs to grow its economy," it added.

Meanwhile, highlighting the rapid economic growth of India, Prime Minister Narendra Modi recently said India has become the fifth-largest economy in a short span of time.

"When I first visited the US as a Prime Minister, India was the 10th largest economy in the world. Today, India is the 5th largest. and we will be the third largest soon. We are not only growing bigger, but we are also growing faster. When India grows, the whole world grows," the Premier said in his address to the US Congress in Capitol Hill on June 23.

Currently, India is the world’s fifth-largest economy, behind Germany, Japan, China and the USA.

As Western leaders look to boost economic cooperation with countries that share similar values, India stands to gain.

India’s potential economic growth arising from a large working-age population represents a major opportunity. Its vast consumer market and pool of affordable labor is also drawing more attention from global brands and trading partners.

In a bid to boost the industrial sector and lift exports, the Indian government has sought to sign free trade deals, a move that’s been warmly received around the world.

Since 2021, India has struck agreements with Australia, the United Arab Emirates and Mauritius. It is also negotiating deals with the European Union, the United Kingdom and Canada.

Russia, whose trade with the West has slumped since its invasion of Ukraine last year, is also interested in increasing ties with India.

The United States and India have taken steps in recent months to strengthen their ties, particularly in defense and technology, as they attempt to counter the rise of an increasingly assertive China.

In January, the White House launched a partnership with India that Washington hoped would help the countries compete against China on artificial intelligence, military equipment and semiconductors.

In February, Air India bought more than 200 aircraft from Boeing (BA) in the American plane maker’s third-biggest sale ever.

US President Joe Biden recently hailed the strength of the US-India economic partnership.

“Together with Prime Minister Modi, I look forward to deepening our partnership even further as we continue to confront shared global challenges,” he said.

The Biden administration has embraced India’s expected growth with unbridled enthusiasm.

Donald Lu, the US Assistant Secretary of State for South and Central Asian Affairs, said the US wants to be part of the Indian economic miracle.

In March, US Secretary of Commerce Gina Raimondo visited New Delhi along with a group of senior executives from US companies. There, she signed an agreement with Indian leaders to discuss coordination of investment in each other’s semiconductor industries.

The International Monetary Fund (IMF) expects India to outperform all major emerging and advanced economies this year, logging GDP growth of 5.9%. By comparison, the German and UK economies will stagnate, while the United States will grow only 1.6%.

If it can maintain its momentum, India will overtake Germany as the world’s fourth largest economy in 2026 and knock Japan from the number three spot in 2032, according to analysis by the Centre for Economics and Business Research.

India’s working-age population stands at more than 900 million, according to 2021 data from the Organisation for Economic Cooperation and Development. In the next few years, its workforce could be bigger than China’s, according to Capital Economics.

Apple (AAPL) has also expanded production significantly in India after suffering supply chain snags in mainland China.

Weeks before, the chief of Foxconn also visited India and met with Premier Modi. The Taiwanese electronics maker, which supplies to Apple, was one of the fastest-growing manufacturers in India late last year and is looking to expand.

Goldman Sachs Research’s India economist, Santanu Sengupta meanwhile said that India is poised to become the second-largest economy by 2075, leapfrogging not only Japan and Germany, but also the USA.

India’s government has placed a priority on infrastructure creation, especially in the setting up of roads and railways. The country’s recent budget aims to continue the 50-year interest-free loan programs to state governments in order to spur investments in infrastructure.

Goldman Sachs believes that this is an appropriate time for the private sector to scale up on creating capacity in manufacturing and services in order to generate more jobs and absorb the large labor force.

Spearheading India’s economic trajectory is also its progress in technology and innovation, the investment bank said.

India’s technology industry revenue is expected to increase by $245 billion by the end of 2023, according to Nasscom, India’s nongovernmental trade association. That growth will come from across the IT, business process management and software product streams, Nasscom’s report indicated.

Additionally, Goldman predicted capital investment will be another significant driver of India’s growth.

“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,” Goldman’s report stated.

S&P Global and Morgan Stanley have also predicted that India is on course to become the third-largest economy by 2030.

India’s first-quarter GDP expanded 6.1% year on year, handily beating Reuters’ expectations of 5% growth. The country’s full-year growth is estimated to come in at 7.2%, compared with 9.1% growth in the 2021-2022 fiscal year.