India can become third-largest economy by 2027-28: Nilesh Shah and Indranil Sengupta

Nilesh Shah of Kotak Asset Management and Indranil Sengupta of CLSA in a conversation with Moneycontriol’s Shweta Punj on the PM's vision of India becoming the third-largest economy.

Prime Minister Narendra Modi said on July 27 that India will become the third-largest economy in the world by the financial year 2027-28, during his third term in office.

Moneycontrol caught up with two economic and financial minds, Nilesh Shah of Kotak Asset Management and Indranil Sengupta of CLSA, to understand if India can become the third-largest economy in the world and how long it will take for us to see a change in per capita income and quality of life on the ground.

The broad consensus is that the target set by the Prime Minister is ‘eminently achievable’. According to several reports, including those put out by the State Bank of India (SBI) and Shah and Sengupta, India could well become the third-largest economy in the world by 2027-28.

"At our current growth rate, we will reach the target by 2028-29. If we accelerate our growth rate to 7-8 percent, it can happen early," Shah said.

However, the optimism is tempered by the fact that just becoming the third-largest economy will not translate into higher per capita income; that’s a journey that will take time for the country. Currently, India is the fifth-largest economy, and its per capita income is Rs 1,72,000, or about $2,450, nearly on par with Bangladesh.

"For us, this is a journey. For 140 crore people to become the third-largest is not the endpoint. In per capita income/GDP terms, we remain well below our peers. For us, this is a stepping stone to growth. During the (major part) of human history, India was among the top two economies in the world. We need to go back to that level. We have a long way to go from a per capita/GDP point of view," added Shah.

For India to achieve the status of the third-largest economy, it will not have to do anything radically different. The SBI report said that India needs to add $1.8 trillion to its gross domestic product (GDP), which is more than the current size of Australia’s economy, between 2022-27.

"If we continue business as usual, we can hit $44 trillion in the next 30 years, which will take us to where smaller Eastern European economies are today in terms of income. If we are able to (bring in) reforms, then we will achieve efficiencies of scale, and we can touch $120-130 trillion in the next 30 years. When you are 140 crore people, you will become the third-largest economy in overall terms; the challenge is to grow more. If we bring in reforms, then we can treble the number from $40 trillion to $120 trillion. India’s problem is execution," added Sengupta.

You can watch the full conversation here: https://www.youtube.com/watch?v=eRC_9oo-ms0