The world’s fastest years of economic growth are likely already behind it — expansion is slowing as population growth weakens, according to Goldman Sachs Research. But emerging economies, and powerhouses in Asia in particular, are forecast to keep catching up to richer countries. It is in this context that Goldman Sachs projects India will beat the US by 2075 to emerge as the second largest economy, while also surpassing Japan and Germany.
The US’s relative performance has been stronger than expected over the past decade. However, history suggests it is unlikely to repeat this over the next decade, Goldman Sachs says. US potential growth remains significantly lower than that of large emerging market (EM) economies, and some of the US dollar’s exceptional strength of recent years is expected to be unwound over the next 10 years.
This is how India will leapfrog in each decade leading to 2075
India's GDP is projected to rise from $2.8 trillion in 2020 to $6.6 trillion in 2030.
India's GDP is projected to rise from $13.2 trillion in 2040 to $22.2 trillion in 2050.
India's GDP is projected to rise from $33.2 trillion in 2060 to $45.8 trillion in 2070, closing the gap with $48.5 trillion of the US.
India's GDP is projected to rise from $45.8 trillion in 2070 to $52.5 trillion in 2075, more than $51.5 trillion of the US.
Goldman Sachs projections imply that global growth will average a little under 3% per year over the next 10 years and will be on a gradually declining path, primarily reflecting slower labour force growth. Global population growth has halved over the past 50 years, from 2% per year to less than 1%, and is expected to fall to close to zero by 2075. That's where India's chance lies.
“Global population control is a necessary condition for long-term environmental sustainability,” Goldman Sachs economists Kevin Daly and Tadas Gedminas wrote in a report. But a population that is aging and growing more slowly will have to cope with rising healthcare and retirement costs. The number of countries that face a serious economic challenge from a greying population is likely to steadily increase in the coming decades.
As India’s population of 1.4 billion people becomes the world’s largest, its GDP is forecast to expand dramatically. That's the main driver that can propel India to become the world’s second-largest economy by 2075. However, demographics alone is not going to be the driver of GDP. Innovation and increasing worker productivity are going to be important for the world’s fifth-biggest economy. In technical terms, that means greater output for each unit of labor and capital in India’s economy.
For India, a key to realizing the potential of that growing population is boosting participation within its labor force, as well as providing training and skills for its immense pool of talent, says Santanu Sengupta, Goldman Sachs Research’s India economist in an interview. “Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies”, he says. The dependency ratio measures the number of dependents aged zero to 14 and over the age of 65, compared w ..
Sengupta points out that India’s population has one of the best ratios between its working-age population and its number of children and elderly. “So that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services, continuing the growth of infrastructure.”
Favourable demographics will add to potential growth over the forecast horizon. India’s large population is clearly an opportunity, however the challenge is productively using the labor force, by increasing the labor force participation rate. That will mean creating the opportunities for this labor force to get absorbed and simultaneously training and upskilling the labor force.
Source Name : Economic Times