India has the potential to become the world’s second-largest economy by 2031 and the largest by 2060, according to Michael Debabrata Patra, Deputy Governor of the Reserve Bank of India (RBI). Speaking at an event in Mussoorie, Patra highlighted India’s innate strengths and aspirational goals as the key drivers behind this ambitious projection.
‘It is possible to imagine India striking out into the next decade to become the second-largest economy in the world not by 2048, but by 2031 and the largest economy of the world by 2060,’ said Patra.
The Organisation for Economic Cooperation and Development (OECD) has projected that in purchasing power parity (PPP) terms, India will overtake the US by 2048 to become the second-largest economy in the world. Patra emphasized that PPP is a more accurate measure for cross-country comparisons due to the volatility and idiosyncratic behavior of current exchange rates.
‘An alternative measure is purchasing power parity (PPP). It is the price of an average basket of goods and services in each country. With PPP, the comparison changes dramatically. In terms of PPP, India is the third-largest economy in the world. The 5 trillion USD milestone for 2027 translates to 16 trillion USD in PPP terms,’ Patra explained.
Currently, India is the fifth-largest economy in terms of exchange rate, with a GDP of 3.6 trillion USD. However, in PPP terms, India ranks third behind China (34.6 trillion USD) and the US (27.4 trillion USD) with a GDP size of 14.5 trillion USD.
Patra outlined several factors contributing to India’s positive economic outlook. He noted that India’s development process has been driven by capital accumulation, making investment the main lever of growth. Although the investment rate peaked at close to 40% of GDP in 2010-11 and moderated unevenly until 2020-21, it has stabilized around 31.2% during 2021-23 and is showing signs of acceleration.
The deputy governor also highlighted India’s macroeconomic and financial stability. ‘After a long and arduous battle with the upside pressures unleashed by the pandemic and geopolitical conflicts, and exacerbated by sporadic onslaughts of food supply shocks, inflation has fallen back into the tolerance band around the target of 4%. The taming of inflation lays the foundations of sustained high growth in the future by improving consumption conditions, the investment outlook, and external competitiveness,’ said Patra.
On financial stability, Patra noted that gross non-performing assets (GNPAs) in the banking system have steadily fallen from their peak in March 2018 to 2.8% of total assets by March 2024. Adjusted for provisions, net NPAs are just 0.6%. Capital and liquidity buffers are well above regulatory norms, and profitability is high, supporting a credit upswing.
Additionally, Patra predicted that the general government debt, estimated at 81.6% of GDP at the end of March 2024, is expected to decline to 78.2% by the end of this decade. He also cited the digital revolution in India as a significant growth multiplier.
