By FocusEconomics
Region-beating GDP growth: Our Consensus is for India’s economic growth to top 6 percent annually for the remainder of this decade, putting the country among the fastest-growing economies in Asia—and the world. By 2028, India should be the world’s third-largest economy, behind the US and China but ahead of Germany and Japan. That said, this will mainly be by dint of India having the world’s largest population. In per capita terms, India will remain a poor country, with a GDP per person of slightly over USD 4,000 in 2030, less than half the global average.
Trade liberalization in the offing: So far this year, negotiations on trade deals with the EU, UK and US have gathered pace, accelerated by the threat of a more protectionist US under president Trump. India has long had a relatively protectionist trade policy; the country has not joined any of the major regional trade pacts, and has an average weighted tariff of 11.5 percent compared to low single digits for most Asian neighbours. As such, if these trade deals come to fruition, they could provide a notable fillip to foreign investment, while also boosting overseas access for Indian firms.
Infrastructure and manufacturing development: Improving the country’s infrastructure and developing strength in high-tech manufacturing domains will remain key priorities for the government in the coming years. The state will continue to spend on the national highway network (under the Bharatmala project), logistics parks, railways and airports. Moreover, India will remain an attractive destination for foreign firms looking to divest from China, given India’s vast domestic market and the government’s flagship Production Linked Incentive (PLI) schemes.
Multipolar foreign policy: India will likely avoid taking sides in international affairs, and simultaneously try to keep all the major powers—China, the US, the EU, Russia—sweet. However, this strategy will grow more difficult given Donald Trump’s strong anti-China stance.
Multiple challenges to persist: Despite efforts to improve the business climate in recent years, challenges persist due to bureaucratic hurdles, tough labor laws and complex tax structures. The country’s basic education system is also poor, despite high-performing higher education in areas such as engineering and IT. With the right domestic reforms and a more open stance toward trade, India could grow considerably faster than currently; when China had a similar GDP per capita to India, it was frequently growing at over 8 percent per year, compared to our forecasts of growth of 5–7 percent in India over the coming years; as such, India is still not maximizing its full economic potential.
Insight from our analysts:
On the country’s strengths, EIU analysts commented:
“India’s main strengths are market opportunities and the macroeconomic environment, which has sustained strong growth. India is the only single-country market that offers a potential scale comparable to that of China. Alongside intrinsic capabilities including solid economic fundamentals, a sound digital infrastructure and favourable demographics, qualified policy support to attract manufacturing investment is available. India will also benefit from improvements from various sectors including IT services, jewellery, pharmaceuticals, tourism, textiles and automotives, supporting diverse economic growth. The country’s large and young workforce that is proficient in English will enhance the country’s global competitiveness, particularly in technology and financial services.”
On inflation, Goldman Sachs analysts said:
“Goldman Sachs Research expects the Indian economy to be relatively insulated against global shocks over the coming year — including tariffs levied by the new administration of US President-elect Donald Trump. India’s GDP will keep growing strongly in the long term — but with a speed bump this year as government spending and credit growth slow.”
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