India likely to become world's second-largest economy by 2075, surpassing the US: Goldman Sachs

India will have the world’s second-largest economy by 2075: Goldman Sachs Research

Labour force participation, a vast pool of talent, and a working-age population ratio are a few of the factors set to make India the second-largest economy in the world by 2075.

With a population of 1.4 billion people, India’s GDP is estimated to expand dramatically, reaching $52.5 trillion marginally surpassing the US GDP projection, according to a forecast by Goldman Sachs.

“Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies," said Santanu Sengupta, Goldman Sachs Research’s India economist.

He pointed out that India’s population has one of the best ratios between its working-age population and its number of children and elderly. “So that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services, continuing the growth of infrastructure,” Sengupta added.

Key drivers of long-term forecasts for India’s economy

Sengupta hailed India’s progress in innovation and technology as the key drivers of the GDP boost. “Innovation and increasing worker productivity are going to be important for the world’s fifth-biggest economy. In technical terms, that means greater output for each unit of labour and capital,” he added.

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Apart from this, capital investment is also going to be a significant driver of growth going forward. “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,” he added.

Goldman Sachs also sees the favourable demographics of India as a potential growth factor. “In India, the demographic transition is happening more gradually and over a longer time period than the rest of Asia. This is primarily due to a more gradual decline in death and birth rates in India compared with the rest of Asia,” he said.

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Risks and challenges

According to the forecast, the main downside risk would be if the labour force participation rate does not increase. “The labour force participation rate in India has declined over the last 15 years. If you have more opportunities — especially for women because the women’s labour force participation rate is significantly lower than men’s — you can shore up your labour force participation rate, which can further increase your potential growth,” Sengupta explained.