In a recent study conducted by Goldman Sachs, it has been predicted that India’s Gross Domestic Product (GDP) will experience a remarkable surge, propelling the nation to become the second-largest economy globally by 2075. With a population of 1.4 billion people, India’s economy is projected to reach a staggering $52.5 trillion, surpassing the United States and trailing only China.
Santanu Sengupta, the India economist at Goldman Sachs Research, emphasized the importance of India harnessing the potential of its expanding population. He emphasized that the key lies in promoting greater participation within the labor force and investing in training and upskilling the country’s talent pool.
“The next two decades present a unique opportunity for India, as its dependency ratio is expected to be one of the lowest among regional economies. This favorable window allows India to establish robust manufacturing capabilities, drive service sector growth, and develop critical infrastructure,” remarked Mr. Sengupta, as quoted in the report.
The report further highlights the favorable ratio between India’s working-age population and the number of dependents, including children and the elderly. While India benefits from demographics, the report emphasizes that relying solely on this advantage will not be sufficient for sustaining economic growth. Innovation and increased worker productivity will play crucial roles in India’s journey towards becoming the world’s fifth-largest economy. This translates into maximizing output per unit of labor and capital in the Indian economy.
The report also underscores the significance of capital investment as a key driver of future growth. Fueled by favorable demographics, India’s savings rate is anticipated to rise due to decreasing dependency ratios, growing incomes, and the expansion of the financial sector. These factors will contribute to a larger pool of available capital, which will further stimulate investment in various sectors.
The report commends the Indian government’s efforts in laying the foundation for economic progress in recent years. Furthermore, given the healthy balance sheets of private corporations and banks, the report suggests that conditions are conducive for a private sector capital expenditure cycle.
However, the report issues a cautionary note, highlighting the need for India to effectively utilize its large population. While India’s demographic advantage is undoubtedly an opportunity, the challenge lies in channeling its labor force productively by increasing the labor force participation rate.
“Creating opportunities for absorbing the labor force and concurrently providing training and upskilling programs are crucial. This will not only bolster the labor force participation rate but also enhance India’s potential for growth,” the report states.
The report further explains that India’s demographic transition is occurring at a more gradual pace compared to the rest of Asia. This slower decline in death and birth rates is a distinguishing factor for India.
The report concludes by warning that India’s immense potential could be squandered if its labor force participation rate does not improve. Over the past 15 years, India has witnessed a decline in labor force participation, particularly among women. By expanding opportunities, especially for women, India can fortify its labor force participation rate and subsequently unleash its full growth potential, the report asserts.
