Third-largest economy target within reach for India: 4 reasons that make PM Modi confident

Prime Minister Narendra Modi's remark on India to become the third-largest economy globally is borne out on the back of rising capital expenditure and investment ratios picking up after an 11-year hiatus.

Experts suggest that capex has emerged as a key growth driver in India, adding that the cycle has more room to run.

Speaking at the India Today Conclave 2024, PM Modi said his government is steadfastly focused on propelling India's economic stature, targeting a $5 trillion economy within the next three years and envisioning a further rise to $7 trillion by 2030.

"The mood of the nation resonates with the vision of a developed India. Rather than mere headlines, my commitment is to meeting deadlines," he said, adding that the collective aspiration is for a Viksit Bharat by 2047. 

Numbers stack up in India's favour

India, at present, ranks as the world's fifth-largest economy, with a gross domestic product (GDP) of $3.7 trillion in fiscal 2024. Recent data from the National Statistical Office (NSO) shows India's economic resilience, with GDP growth exceeding expectations at 8.4 per cent for the quarter ending December. The statistics ministry has also raised the growth estimate for FY24 to 7.6 per cent from 7.3 per cent earlier.

The Reserve Bank of India’s growth estimate for FY24 is 7 per cent, while the International Monetary Fund has forecast 6.7 per cent growth, making India the fastest-growing economy in the G20 bloc.

Economic projections outlined in the Interim Budget 2024-25 affirm the government's commitment to fiscal discipline, with a fiscal deficit target of 5.1 per cent in FY25 and a strategic path towards reducing it to 4.5 per cent by 2026. 

The clincher, according to Morgan Stanley

Despite inflation risks, experts remain optimistic about meeting these targets, bolstered by prudent financial management. In a research note, Morgan Stanley says the defining characteristic of the current expansion is the rise in the investment-to-GDP ratio.

In the 2003-07 cycle, the ratio rose from 27 per cent in fiscal 2003 to 39 per cent in fiscal 2008, which was close to the peak. Investment to GDP then hovered around those levels until it peaked in fiscal 2011. It then registered a decade of decline till 2021, but has now increased to 34 per cent, and is expected to rise further to 36 per cent in 2027. The note adds that the current expansion closely resembles that of 2003-07.

From startups to street vendors,  a new growth script

Addressing the entrepreneurial landscape at the conclave, PM Modi lauded the exponential rise of startups in India, heralding a paradigm shift in the country's economic landscape. The proliferation of over 125,000 registered start-ups, spanning 600 districts, underscores India's emergence as a global innovation hub.

Furthermore, the highlighted initiatives such as the PM Swanidhi scheme, aimed at empowering street vendors with access to affordable loans, and underscored the government's commitment to fostering inclusive growth across all sectors.

Prioritising neglected sectors

Reflecting on the government's governance model, PM Modi emphasized a decade of transformative policies that prioritized neglected sectors, propelling India towards holistic development. Notable strides were made in healthcare, women empowerment, environmental conservation, and legislative reforms, underlining a comprehensive approach towards nation-building.

Looking ahead, PM Modi articulated a vision of a robust and resilient India poised to lead across various fronts, including infrastructure, defence, and space exploration.