Now at $3.1t, Indian economy is set to surpass Japan as Asia’s second largest by 2030

India is set to regain its position as the world’s fastest growing major economy in the current fiscal ending March 31, 2022, and is likely to overtake Japan as Asia’s second-largest economy by 2030 when the country’s GDP is projected to surpass that of Germany and the UK to rank as the world’s No.3.

The size of the Indian economy, based on current prices in dollar terms, is estimated to be $3.1 trillion. It is currently the sixth-largest in the world, behind the US, China, Japan, Germany and the UK.

According to the first official estimate released by the Statistics Ministry, India’s gross domestic product will grow 9.2 per cent in the current fiscal year, the fastest since 1988-89, helped by a robust farm sector and strengthening recovery in manufacturing, construction and services sector. The third Covid wave may hurt expansion in the months ahead.

The latest growth projection is slightly slower than a 9.5 per cent expansion forecast by the Reserve Bank of India and leading economists.

“Overall, India is expected to continue to be one of the world’s fastest-growing economies over the next decade,” it said.

According to the World Bank, India’s GDP in current dollar terms had risen to $2.9 trillion in 2019 before falling to $2.7 trillion in 2020 due to Covid impact.

The long-term outlook for the Indian economy is supported by a number of key growth drivers.

“An important positive factor for India is its large and fast-growing middle class, which is helping to drive consumer spending,” IHS Markit said, forecasting that the country’s consumption expenditure will double from $1.5 trillion in 2020 to $3 trillion by 2030.

“India’s nominal GDP... is forecast to rise from $2.7 trillion in 2021 to $8.4 trillion by 2030,” IHS Markit said. “This rapid pace of economic expansion would result in the size of Indian GDP exceeding Japanese GDP by 2030, making India the second-largest economy in the Asia-Pacific region.”

For the full fiscal year 2021-22, India’s real GDP growth rate is projected to be 8.2 per cent, rebounding from the severe contraction of 7.3 per cent year-on-year in 2020-21, IHS Markit said. In the 2022-23 fiscal year, the Indian economy is forecast to continue growing strongly at a pace of 6.7 per cent.

Analysts at HSBC Holdings said new restrictions in India due to rising Covid-19 cases could lower the nation’s economic growth by about a quarter of a percentage point in the current fiscal year.

“Economic cost will be there, but hopefully it will just be about a third or lower than the economic cost of previous waves,” HSBC economist Pranjul Bhandari said.

Meanwhile, foreign investors have turned net buyers in the first week of January by infusing Rs32.02 billion in Indian equities after three months of selling spree as corrections in markets provided them a good buying opportunity. Going forward, FPIs flows will remain volatile on the expectation of the US Fed rate hike, rising concerns over the Omicron variant and elevated inflation levels, experts said.

The latest inflow came after witnessing a net outflow of Rs385.21 billion during October-December 2021. Before that, foreign portfolio investors (FPIs) had made a net investment of Rs 131.54 billion in September last year.

According to data available with the depositories, FPIs have infused a net sum of Rs32.02 billion in the Indian equities during January 3-7.

-- issacjohn@khaleejtimes.com