The impact of the pandemic notwithstanding, India will become the world’s third-largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030, one of UK's leading economics consultancies, Centre for Economics and Business Research, said in its annual publication.
It said growth will naturally slow as India becomes more economically developed, with the annual GDP growth expected to sink to 5.8% in 2035. India currently is the world’s seventh-largest economy.
CEBR forecast India’s economy to grow at 9% in 2021 and 7% in 2022 but growth will gradually slow as the economy becomes more developed.
Of the major economies, the CEBR estimated China's GDP to fall 2% in 2020 and rise 5% in 2021.
India’s economy had been losing momentum even ahead of the Covid-19 shock. The rate of GDP growth sank to a more than the ten-year low of 4.2% in 2019, down from 6.1% the previous year and around half the 8.3% growth rate recorded in 2016.
Slowing growth has been a consequence of a confluence of factors, including fragility in the banking system, adjustment to reforms and deceleration of global trade.
"Infrastructure bottlenecks mean that investment in this area has the potential to unlock significant productivity gains. Therefore, the outlook for the economy going forward will be closely related to the government’s approach to infrastructure spending," CEBR said.
The pace of the economic recovery will be inextricably linked to the development of the Covid-19 pandemic, both domestically and internationally. As the manufacturer of the majority of the world’s vaccines and with a 42-year-old vaccination programme that targets 55 million people each year, India is better placed than many other developing countries to roll out the vaccines successfully and efficiently next year, it said.
In the medium to long term, reforms such as the 2016 demonetisation and more recently the controversial efforts to liberalise the agricultural sector, can deliver economic benefits.
However, with the majority of the Indian workforce employed in the agricultural sector, the reform process requires a delicate and gradual approach that balances the need for longer-term efficiency gains with the need to support incomes in the short-term.
The agency cautioned that the government’s stimulus spending in response to the Covid-19 crisis has been significantly more restrained than most other large economies, although the debt to GDP ratio did rise to 89% in 2020.