India’s economic clout is growing, as seen in the chart below.
From Bank of America Merrill Lynch (BAML), it shows the outlook for Indian GDP in nominal terms, including the nations it will pass on its way to becoming the third largest economy in the world behind the US and China.
“As India approaches peak demographic dividend over the next decade, we estimate that it will grow at 7% in real terms and 10% in nominal USD terms,” says BAML.
“By contrast, most developed market economies will likely register sub-4% nominal GDP growth in the same period.
“As a result India is expected to surpass France, the UK, Germany and Japan to emerge as the world’s third-largest economy by 2028.”
Nominal GDP measures output and price movements.
BAML says demographics, the emergence of mass markets and financial maturity will likely power India’s move up the rankings.
“It has a strong demographic tailwind acting on a huge working population,” it says.
“India’s growth will also be supported by institutional change. We expect the Modi regime to continue to pursue its reform agenda, which has pushed up India by 30 places to 100 in the World Bank’s latest ease-of-doing-business ranking.
“Moreover, financial market liberalisation will support credit growth and attract foreign investment.”
However, while India is often lumped together with China as the next powerhouses of the global economy, BAML says India’s path to economic prominence will use a distinctly different model.
“The Indian model focuses on domestic demand and services rather than exports and manufacturing,” it says.
In other words, India is not the next China.
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