Superpower. India to become $10-trillion economy by 2035, forecasts CEBR

The Centre for Economics and Business Research (CEBR), one of the reputed consultancies of UK, has said that India now seems unstoppable in its momentum to become the third economic superpower. It forecasts that by 2037 it will be third largest economy.

CEBR is one of the UK‘s leading economics consultancies and its annual publication ‘World Economic League Table’ tracks macroeconomic developments globally and country-wise. It presents forecasts for 191 countries till 2037. The latest edition of report was released on Monday which also warned that the world is moving towards recession.

Highlighting the development of Indian economy, the report said: “In 2035, we forecast that India will become the third $10-trillion economy. Although there are political factors that could hold India back, it has demographics on its side.”

GDP growth

India ranks second in terms of population after China. Its GDP per capita (adjusted to Purchasing Power Parity) is estimated at $8,293 in 2022 which put it in the group of lower middle-income countries.

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“Over the next five years, the annual rate of GDP growth expected to average 6.4 per cent, after which it is expected to average 6.5 per cent in the subsequent nine years. This growth trajectory will see India rise from fifth place on the World Economic League Table in 2022 to third in the global rankings by 2037,” it said.

According to the report, the pandemic had a particularly devastating effect in absolute terms and India has the third highest death toll globally. This, in turn, led a significant decline in economic activity, with output contracting by 6.6 per cent in fiscal year 2020-21.

A sharp rebound in economic activity followed, fuelled by an uptick in domestic demand, as the pandemic subsided, resulting in GDP growing by 8.7 per cent in fiscal year 2021-22, making it the fastest growing major economy in the world. 

“We still expect growth in fiscal year 2022-23 to remain robust, at 6.8 per cent, in spite of decelerating global demand and tightening monetary policy to curb inflationary pressures. This, in turn would bring output 8.4 per cent above 2019 levels,” the report said.  Output growth is expected to ease in fiscal year 2023-24, however, with CEBR forecasting growth of 5.8 per cent, as accelerating price levels bite into domestic demand.

Retail inflation

The report noted that though retail inflation, based on Consumer Price Index (CPI), has been above the upper tolerance level of 6 per cent during the year, it has been lower in India than in most other large economies.

Moreover, much of India’s current inflation rate reflects higher food prices, an erratic item but one that also accounts for a larger share of the consumer basket than in any other G20 country. The uptick in inflation has nevertheless been softened by India’s purchase of discounted Russian energy. 

“The Reserve Bank of India has raised interest rates to bring back inflation to its target range. Higher borrowing costs will weigh on public debt, especially on top of expanded infrastructure spending and targeted fiscal measures,” the report said.

Government debt currently stands at 83.4 per cent of GDP, with a high fiscal deficit amounting to 9.9 per cent of GDP in 2022. Fiscal consolidation will eventually be necessary to ensure that debt levels do not destabilise the economy.