India set to become 3rd largest economy by 2030, GDP to be around 7% in 2026-27: S&P Global Ratings

India is set to become the world's third largest economy by 2030, S&P Global Ratings said in its latest report released on Tuesday. It said that the nation's GDP growth would be around 7 per cent in 2026-27 fiscal year.

This would mean that India will surpass Japan and Germany. 

In its Global Credit Outlook 2024, S&P predicted a 6.4 per cent GDP growth in the fiscal year through March 2024 (2023-24) as compared to 7.2 per cent in the previous financial year.

The growth rate will remain at 6.4 per cent in the next fiscal (2024-25) before climbing to 6.9 per cent in the next and 7 per cent in 2026-27, it said. "We see India reaching 7 per cent in 2026-27 fiscal."

At present, India is the fifth largest economy in the world behind the US, China, Germany and Japan. It replaced the UK as the 5th biggest economy in 2022.

The US is currently on the top of the list with a GDP of $25.5 trillion, representing a quarter of the world's GDP. China is in the second spot with a GDP of approximately $18 trillion, nearly 17.9 per cent of the world GDP. Japan follows as the third-largest economy with a GDP of $4.2 trillion, and Germany is fourth with a GDP of $4 trillion.

The report said that India's greatest challenge will be transforming itself as the next big global manufacturing hub.

"A paramount test will be whether India can become the next big global manufacturing hub, an immense opportunity. Developing a strong logistics framework will be key in transforming India from a services-dominated economy into a manufacturing-dominant one," S&P added.

Unlocking the labour market potential will largely depend upon upskilling workers and increasing female participation in the workforce.

"Success in these two areas will enable India to realize its demographic dividend," it said.

"A paramount test will be whether India can become the next big global manufacturing hub, an immense opportunity. Developing a strong logistics framework will be key in transforming India from a services-dominated economy into a manufacturing-dominant one," S&P added.

S&P said a booming domestic digital market could also fuel expansion in India's high-growth startup ecosystem during the next decade, especially in financial and consumer technology.

In the automotive sector, India is poised for growth, building on infrastructure, investment, and innovation, it added.

Last week, Ministry of Statistics and Programme Implementation data showed that the economic growth in months of July, August and September was 7.6 per cent.

That means, India’s real GDP in Q2 of FY24 is 7.6 per cent more than what it was in the same three months of FY23.

The Indian economy had expanded by 7.8 per cent in April-June and 6.2 per cent in July-September 2022.

The Reserve Bank of India (RBI) had forecast a growth rate of 6.5 per cent.

The growth rate sharply rose due to a jump in activity in the manufacturing and construction sectors. 

While the manufacturing sector's gross value added (GVA) grew by 13.9 per cent year-on-year in July-September, up from 4.7 per cent in April-June, that of the construction sector rose by 13.3 per cent, up from versus 7.9 per cent in April-June.

Also read: India's 7.6% GDP growth in Q2 boosts 6.5% growth projection for FY24

Also read: SBI Research revises FY24 growth projections to 7% from 6.7% after GDP Q2 surprise shoot