India @ 2030: India's journey to become $5 trillion economy will depend on the pace of reforms

As India strives to become a $5-trillion economy by 2030, more inclusive reforms will be necessary for faster growth. The next five years are exciting for the economy—providing both fresh possibilities and new challenges

Five years is not a very long time. But neither is it too short. It’s roughly the same time span in which a teenage child transforms into an adult or certain trees take to mature and bear fruit. For democracies too, five years means new governments, new policies and economic cycles. 

The same holds true for India. As the fastest-growing major economy in the world—with an estimated growth rate of more than 7% over two straight years—it has ambitions of turning into a $5-trillion economy over the next few years. But it has to address a number of challenges—from sustaining economic growth through more policy reforms, creation of adequate physical infrastructure, boosting private sector investments, meeting the health and nutritional needs of a growing population, finding adequate jobs for its workforce, and mitigating the risks of climate change.

Meanwhile, the global geopolitical landscape is in for a reset with national elections in as many as 50 countries this year. According to US-based think tank Integrity Institute, in 2024, as many as 83 elections (national or otherwise) are being held across 78 countries; this means these polls would impact the lives of nearly half the world’s population who collectively reside there. “We won’t see that many again until 2048. What also makes 2024 special is not just the number of countries but the fact that for the first time, you will have a US presidential election in the same year as elections in major countries such as India, Indonesia, Ukraine, Taiwan, Mexico, the UK, and the European Parliament,” it noted. (See graphic ‘Poll Fever’.) 

What India will be in 2029 will in a large part be shaped by the next government that comes to power after the General Elections this year; the new government will lay down the key priorities for the next five years as well as the policy prescriptions that are required. 

A bright spot 

The India story continues to be a bright spot for the international community, which is yet to fully recover from the impact of the pandemic, as well as the two ongoing wars and the Red Sea conflict. (See graphic ‘Shining Bright’.) 

According to Christian de Guzman, Senior Vice President at Moody’s Investors Service, the agency expects India to be one of the fastest-growing—if not the fastest—G20 economies over the next five years, largely based on its ability to weather the lacklustre near-term outlook for global growth due to its large consumption-based economy, boosted by the government’s efforts to improve productivity via reforms and infrastructure development. “Over the longer-term, India also stands to benefit from favourable demographics in contrast to the ageing populations in other large economies, including China. At the same time, this relatively favourable view assumes that India will sustain broad financial stability and gradual fiscal consolidation—areas that have previously weighed on the country’s potential growth and sovereign credit profile,” he says. 

In a recent report, brokerage Morgan Stanley also highlighted India’s strong fundamentals. It said that the country’s nominal GDP growth will accelerate to 11.6% this year, making it the third consecutive year that India’s nominal GDP growth will be the strongest in Asia. India’s contribution to Asian and global growth will rise to 30% and 17%, respectively, up from 28% and 16% in 2023. “Over the medium term, our Chief India Economist Upasana Chachra forecasts that real GDP growth will average 6.3% until FY32,” it noted. The brokerage expects the investment to GDP ratio to rise to 33.5% by FY25, and to 36% by FY27. 

Challenges ahead 

However, it’s not all smooth sailing. Despite continuous efforts by successive governments, challenges remain. More reforms are needed to further improve the ease of doing business by ensuring faster regulatory clearances, say experts. The notification of the long-pending four Labour Codes, further land reforms, a national e-commerce policy as well as regulation of the digital economy are some of the pending items on the policy reform table. 

Arun Singh, Global Chief Economist at research firm Dun & Bradstreet, points out that India is well on its way to becoming a $5-trillion economy. “We should now target becoming a $10-trillion economy. For this, a lot more capital and reforms are needed to bring in global investors,” he says. India still needs to improve its physical infrastructure and raise the foreign investment ceiling in various sectors as well as privatise the non-performing, non-strategic central public sector undertakings, he says. 

Arun Singh
Global Chief Economist
Dun and Bradstreet

“Land and labour reforms also have to be taken forward. The government needs to review the administrative machinery to ensure faster clearances. The Insolvency and Bankruptcy Code needs to be reviewed for quicker resolutions. We need to create more formal sector jobs and improve the LFPR (labour force participation rate), especially with regard to the female workforce. More MSMEs have to be brought into the formal economy,” says Singh, adding that some of these reforms are structural in nature and could take longer than five years. 

According to de Guzman of Moody’s, challenges to the economy include its significant exposure to environmental and social risks. In particular, the relatively large share of the labour force involved in agriculture renders the broader economy susceptible to climate shocks, such as irregular monsoons, flooding, as well as heat and water stress, he says. Low and unevenly distributed incomes, as well as unequal access to high-quality education and other basic services, could also impair progress towards sustaining high growth over the medium- to long term, if not addressed. 

“Moreover, India’s investment climate and regulatory quality-while having shown significant improvement over the past decade-remain weak when compared to many of its emerging market peers, although gains in addressing other shortcomings such as poor infrastructure have contributed to the resilience of growth in recent years,” says de Guzman. 

India is hoping to significantly raise the share of manufacturing in GDP in the coming years from about 17% at present to 25% in the coming years. Efforts are already underway and some headway seems to have been made through measures such as production-linked incentive (PLI) scheme for 14 sectors. The scheme is yet to fully take off with just Rs 4,415 crore of incentives disbursed and Rs 1.03 lakh crore of investments. Physical infrastructure-in terms of both capacity addition and modernisation as well as new projects-is also a key focus area with a budgeted capex of Rs 10 lakh crore this fiscal. 

As many as 248.2 million people have moved out of multidimensional poverty in the nine years to 2022-23, according to a recent NITI Aayog report. However, ensuring adequate social infrastructure-healthcare and education-will remain a key priority for the government as well as further bridging the financial inclusion divide by providing not only banking services, but also adequate credit investment and insurance options to the bottom of the pyramid. Sustainability and green energy are two other areas the government will have to focus on to ensure that India remains ahead in emerging technologies such as green hydrogen. Plus, there are also challenges from emerging digital technologies in the field of AI and machine learning. 

The following pages delve into some of these themes to identify and chart out an agenda and aspiration of what India at 2029 should and can be. One thing is for sure: it will be one interesting journey.