A $30 Trillion Economy?

The Vision India @2047 document, to be released by Niti Aayog early next year, will outline a blueprint of structural reforms necessary for India to become a $30 trillion economy by 2047, the centenary of Indian independence.  

Niti Aayog CEO B. V. R.  Subrahmanyam’s early estimates show that to achieve this target India’s annual GDP will have to grow at a significantly higher rate than the current 6.5 per cent. Is that possible over an extended time period? 

Ratings agency S&P recently forecast that India’s GDP will rise to $7.30 trillion by 2030. This assumes India’s economy will double in 2030 from $3.70 trillion in 2023. That factors in an annual nominal GDP growth rate of around 10 per cent.  

Nominal GDP includes inflation which is based on the wholesale price index (WPI). Unusually, the WPI in India is currently negative. The finance ministry expects WPI to rise above zero in the second half of this fiscal. But for the entire year, WPI will be  no more than three per cent even as the consumer price index (CPI), which is not used as an inflation deflator for measuring GDP, is likely to stay at around five per cent. 

S&P has clearly taken the average nominal GDP growth rate between 2023 and 2030 at 10 per cent by assuming average real GDP growth at seven per cent plus an inflation deflator (WPI) of three per cent. Average nominal growth of 10 per cent over seven years automatically doubles GDP, assuming no further rupee depreciation against the US dollar. 

Apart from that optimistic assumption, S&P’s estimates are actually fairly cautious. Even a nominal growth rate of 10 per cent (seven per cent plus a three per cent inflation deflator) after 2030 will not be enough to make India a $30 trillion economy by 2030.

Going from S&P’s 2030 GDP benchmark of $7.3 trillion to $30 trillion in 2047 requires quadrupling the economy in 17 years. Let’s do the math backwards.  

To achieve the $30 trillion target by 2047, India’s GDP will have to double twice between 2030 and 2047. That is roughly every nine years. This translates into an annual average nominal GDP growth rate of eight per cent. 

Now add the inflation deflator of three per cent. The Indian rupee has historically depreciated against the US dollar by three per cent a year. Assuming that holds in the future, it will cancel out the inflation deflator, leaving nominal GDP growth at eight per cent a year for each nine-year period. 

Thus between 2030 and 2039, Indian GDP should double from S&P’s $7.30 trillion estimate (2030) to around $15 trillion (2039). 

In the following period between 2039 and 2047, at a broadly similar growth rate, the $15 trillion economy, now on a fast track, could further double to $30 trillion in 2047. Note that rupee depreciation of three per cent a year has been factored in by adjusting the inflation deflator against the historical depreciation rate of three per cent. 

*China and US

Where will the Chinese and United States economies be in 2047? Hard to say but with China’s long-term economic growth slowing down to three per cent a year and inflation at near zero, its economy could stutter. In 2023, China’s GDP is estimated at just over $17 trillion. By 2047, at a three per cent average annual growth rate, it will barely double in 24 years to $34 trillion. 

India, at $30 trillion will be visible in its tail lights, a fact Chinese political leaders are keenly aware of. Hence Beijing’s bellicosity against a rival it mistakenly thought it had left far behind. China’s rapidly ageing, homogenous Han ethnic workforce will be a millstone around its neck.

The US has fewer worries. Its hetrogenous population, flexible immigration policies and high fertility rates will ensure a relatively young, dynamic workforce. Even with average annual nominal GDP growth at three per cent and with the dollar as global reserve currency, America’s 2023 GDP of $23 trillion will double in 24 years to $46 trillion, maintaining its lead over China.  

Meanwhile, Niti Aayog is preparing to consult business leaders in November on its Vision India @2047 blueprint. Several industrialists are to be consulted, including Reliance Industries Chairman Mukesh Ambani, Tata Sons Chairman N. Chandrashekaran, Aditya Birla group Chairman Kumar Mangalam Birla and Infosys Chairman Nandan Nilekani. 

*Structural Reforms 

Global companies are de-risking their operations in China by moving to India. The reason isn’t only China’s slowing economy or draconian laws against foreign companies sharing data but India’s standalone merits: young demographics, a large consumer market, and world-class software and engineering talent. 

Frank Debets, managing partner (customs and trade practice) at PWC Asia Pacific, regards India as a mandatory part of most global companies’ plans. “What I have seen certainly in the past 5-10 years,” Debet says, “is that India is more often coming up as a place of counter-opportunity and being China Plus One in its own right. Many more international companies would say, ‘we can have an India base also to supply other regions, be it the Middle East, be it East Asia. Faceless customs has made an enormous difference in India.” 

None of this of course should be taken for granted. India needs deep structural reforms. Workforce productivity remains low. Skillsets vary: of the roughly six lakh engineers India produces a year, only the top 20 per cent – around 1.20 lakh – are world-class. Upskilling is crucial. So is setting a higher budget for research and development (R&D). Private sector companies in particular must enhance their R&D spends. 

A $30 trillion economy by 2047, as Niti Aayog’s blueprint envisages, would finally fulfil the tryst with destiny that India’s first prime minister, Jawaharlal Nehru, promised India in 1947.