India is expected to become the third largest economy by 2030, according to the latest report by rating agency S&P Global. The report, titled “Global Credit Outlook 2024: New Risks, New Guide,” expects the country to be the fastest-growing major economy in the next three years.
But the rating agency says the primary test for India will be becoming the next major global manufacturing hub. According to S&P Global, India, Vietnam and Mexico are three emerging markets that could benefit from the reorganization of global supply chains due to strong and stable trade ties with the US.
Establishing a strong logistics framework will be key to India’s transformation from a service-dominated economy to a manufacturing-dominated economy. Unlocking the potential of the labor market will largely depend on upskilling workers and increasing women’s labor force participation. Success in these two areas will enable India to realize its demographic dividend.
A booming domestic digital market could also fuel expansion in the country’s fast-growing startup ecosystem, especially in financial and consumer technology, over the next decade, according to the rating agency. Meanwhile, the country is poised for growth in the automotive sector thanks to infrastructure, investment and innovation, the report said.
The rating agency expects the Asia-Pacific growth engine to shift from China to South and Southeast Asia. “We forecast China’s GDP growth to slow to 4.6% in 2024 (2023: 5.4%), pick up to 4.8% in 2025 and return to 4.6% in 2026. We see India reaching 7.0% (6.4%) in 2026; Vietnam, 6.8% (4.9%); Philippines, 6.4% (5.4%); and Indonesia remain at 5%,” the rating agency says.
Meanwhile, the rating agency warns that as emerging markets such as India, South Africa and Mexico prepare for general elections next year, low levels of policy predictability could undermine investor sentiment and derail existing investment potential.
Notably, last month Fitch Ratings raised India’s medium-term potential growth estimate by 70 basis points to 6.2%, from an earlier forecast of 5.5%.
“We have made major upgrades in India and Mexico, with Mexico benefiting from a much better outlook for the capital-to-labor ratio. India’s estimate is higher at 6.2% from 5.5% and Mexico’s at 2.0% from 1.4%,” Fitch Ratings cut its estimate of potential growth as China slows in its latest “Emerging Markets” report.
Earlier this year, the International Monetary Fund (IMF) also said that India will become the world’s third largest economy by 2027, overtaking Japan and Germany, as its GDP crosses $5 trillion. India wants to be a developed economy by 2047.
In October this year, the World Bank said India’s GDP growth for FY23-24 would be at 6.3%, maintaining its GDP estimate from its June forecast, citing India’s continued “resilience” despite a challenging global environment. In June, the World Bank said India would remain the “fastest growing economy” in FY24.
