Ind-Ra Forecasts India’s Transition to Upper-Middle Income Category by FY33-FY36
According to a report by India Ratings and Research released on Monday, India is projected to enter the prestigious group of upper-middle income countries by FY36. Additionally, the report estimates that India’s economy will reach $15 trillion by FY47.
During her speech at the Vibrant Gujarat Global Summit in January, Finance Minister Nirmala Sitharaman remarked that achieving a $30-trillion economy for India by 2047 is deemed a “modest” projection.
However, according to the agency’s report, the Indian economy will need to expand at a rate of 9.7 percent per year between FY24 and FY47 to reach this objective. This goal may prove to be challenging, if not unattainable, especially considering the current global turmoil.
The agency emphasized that achieving the $30 trillion target by 2047 would be challenging, with much depending on the developments in both the global and domestic macroeconomic landscape.
A recent report from rating agency CRISIL predicted that India is poised to advance to an upper-middle-income status and nearly double its economy to $7 trillion. This growth trajectory will be propelled by substantial private investments in emerging sectors, sustained government expenditure on infrastructure development, ongoing reform initiatives, and enhanced efficiency resulting from increased digitization and improved physical connectivity.
Sunil Kumar Sinha, Senior Director and Principal Economist at India Ratings and Research, stated that the future trajectory of the Indian economy beyond the estimated $3.6 trillion in FY24 will hinge on the evolution of real GDP growth, inflation (GDP deflator), and the INR/USD exchange rate.
Until 2006, India was classified by the World Bank as a low-income country. In 2007, it transitioned to the lower-middle-income category and has remained in that classification since. As of 2022, India’s per capita GDP was reported at $2,390 by Ind-Ra.
Referring to just two occurrences in the past 50 years when the economy expanded by more than 9.7 percent annually in USD terms over a decade-long period (1973-1982 and 2003-2012), the Ind-Ra report stated, “Over the course of 50 years, the international experience indicates that it is challenging to uphold and sustain such elevated rates of real GDP growth in USD terms as the economy matures.”
The report noted that while the Indian economy is experiencing strong growth, no significant economy has managed to sustain a 7 percent annual growth rate without the backing of global demand and trade.
“Regrettably, global demand and trade have significantly constrained since FY12. This began with developed economies implementing protectionist trade policies following the global financial crisis, which, exacerbated by the COVID-19 pandemic, has now transitioned into trade fragmentation, near-shoring, and friend-shoring,” stated the report.
The report mentioned that the imperative to fulfill climate-related obligations is prompting developed economies to revise their trade policies, encompassing both tariffs and non-tariff measures.
However, Ind-Ra anticipates that India’s dedication to energy transition will unlock various new avenues for growth, including products and services related to renewable energy, power storage, power distribution, and grid infrastructure.
The ratings agency stated that the expansion of the middle-income class, which boosts demand for a diverse array of goods and services, will serve as a catalyst for growth in India.