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India will be the 3rd largest Economy by 2031 – Find out what CEBRs latest report says today

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A fortnight ago, people felt things would be dreary in 2022. The world is recovering despite the rising inflation, supply chain issues, Omicron-led flight cancellation, an extension of work from home, curfews, and curtailed travelling,

The World economy has grown and will reach $100tn in 2022, says the Centre for Economic and Business Research (CEBR) in its 2022 report. The analysts foresee global economic growth at 4.2% better than expected before.

This growth will push the World’s GDP to over $100tn, higher than its level before the pandemic and two years before its previous deadline of 2024.

Not just the world, but India may overtake France again and become the sixth-largest economy in the world. Moreover, the CEBR report predicts a reversal of the historic mean with China and India moving up the league table by 2031. The GDP of the US is $22tn, which is larger than the combined GDP of 150 countries today.

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Japan, China, the US, and Germany account for 50% of the world GDP. Although, the economic conditions are changing with the economic gravity shifting towards Asia. China, Japan, India, and Korea accounted for $26tn in 2021.

Experts forecast China will overtake the US to top the table in 2030, while India will overtake Germany to become the 3rd largest economy by 2031.

Will India really become the third-largest economy?

Well, like all economic forecasts these ratings are contingent of several other factors too.  

Let’s look at the factors that drive GDP in India

India is the second-largest country population-wise globally. In 2020, India’s per capita GNI was $6,284, making it a lower-middle-income country. Even though India is a large exporter of cars, chemicals and clothing, the services sector with flourishing industries in IT and software account for most of the economic activity.

India had been losing its growth momentum just before the COVID-19 crisis. However, the pandemic knocked India off course, and its GDP sank to a ten-year low of 4.2%. As a result, after surpassing the UK in 2019, the UK overtook India again in 2021.

Causes of slowdown

The instability in the banking system, adjustment to reforms, and a slowing of global trade were some factors that led to a slowdown in India’s growth. And then, the COVID-19 struck, causing both economic and human losses. India had ~140,000 deaths by mid-December, i.e., ten deaths per 10,000 cases.

The nationwide lockdown, curbs on economic activities, drying up global and domestic demand led to a slide when India’s Q2 2020 GDP fell 23.9% below its 2019 level.

However, as lockdowns lifted, the economic activities and growth rose gradually. The agricultural sector was a key driver in India’s recovery buoyed by a bumper harvest.

The CEBR Forecasts: 

The CEBR report said India’s GDP would fall 3% in 2020 and rise 8% in 2021. Per the Union Ministry of Statistics and Program Implementation, India’s GDP grew 8.4% in Q2 2021-22 compared to a 7.4% contraction in the same quarter in 2020.

Analysts foresee the UK staying ahead till 2024 before India takes over again, while the UN expects India’s population to overtake China’s in 2027.

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CEBR estimates India’s economy will expand 7.0% in 2022.

Growth will naturally slow as India becomes more economically developed, with an annual GDP that may sink to 5.8% in 2035.

This growth trajectory will see India become the world’s third-largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030.

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India’s road to reach the third spot on the WELT

The development of the COVID-19 pandemic domestically and internationally will influence India’s pace of fiscal recovery. India manufactures most of the world’s vaccines, and its 42-year-old vaccination programme that targets 55 million people each year will help it roll out the vaccines successfully and efficiently in 2022.

The medium to long-term benefits of reforms like the 2016 demonetization will deliver economic benefits. The government’s stimulus spending in response to the COVID-19 crisis was substantially more controlled than most other large economies, though the debt to GDP ratio rose to 89% in 2020.

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Most of India’s workforce is engaged in the agricultural sector, so the changes must be gradual. These reforms must balance long-term efficiency gains with the need to support incomes in the short term.

An increase in infrastructure spending will help India unlock substantial productivity gains. So, any benefits the country accrues will depend on the government’s approach to infrastructure spending.

These are forecasts dependent on several global and domestic factors. We will have to wait and see whether India surpasses the UK and Germany to become the third-largest economy.

While we consider the economy, let’s do our part and invest wisely for the long term. Subscribe to our 5 in5 Wealth Creation Strategy and begin your journey today.


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