India is on course to become the third-largest global economy by the fiscal year 2030–31, according to a report by S&P Global, published on September 19. The forecast is based on an expected annual growth rate of 6.7%, which would also see India transition into the upper-middle-income category.

S&P Global Market Intelligence projects that India’s nominal GDP will nearly double to over $7 trillion by fiscal 2030–31, up from $3.6 trillion in fiscal 2023–24. This would increase India’s share of global GDP from 3.6% to 4.5% and raise its per capita income to the upper-middle-income bracket.

If realised, this growth would place the country among the world’s economic heavyweights, driven by structural reforms and an increase in private sector investment.

India’s post-pandemic economic performance has been extremely robust. In the fiscal year that ended in March 2024, growth came in at 8.2%, surpassing the government’s earlier estimate of 7.3%. This strong growth trajectory continued into fiscal 2024–25, buoyed by robust goods and services tax (GST) collections, which hit an all-time monthly high of INR2.1 trillion in April.

The HSBC India Purchasing Managers’ Index (PMI), compiled by S&P Global, has also recorded sustained growth, signalling that the country’s manufacturing and services sectors are expanding. In fact, India has been the top performer in private sector PMI output worldwide over the past year, according to the S&P Global report.

The S&P Global report stated that structural reforms aimed at easing business transactions and improving the logistics sector will be key to sustaining this momentum. By reducing reliance on public capital expenditure and encouraging private investment, India can maintain strong growth despite fiscal constraints. However, high food price inflation, exacerbated by climate change, poses a risk to this growth, potentially making investment more expensive and complicating monetary policy.

While India’s economic prospects remain strong, certain challenges could temper growth in the near term. The Reserve Bank of India (RBI) implemented rate hikes between May 2022 and February 2023, which are still in the process of transmitting through the economy. These hikes, combined with regulatory measures aimed at curbing unsecured lending, are expected to weigh on demand in fiscal 2024–25, the report said. Additionally, the government’s commitment to fiscal consolidation, which involves reducing public spending to improve its balance sheet, may limit public investment.

Despite these challenges, India’s real GDP is projected to grow by 6.8% in the current fiscal year, making it the fastest-growing large economy in the world. The private sector is expected to play a larger role in driving investment, particularly in light of the government’s constrained fiscal capacity. Private sector investment has yet to fully rebound, but signs of recovery are emerging. Infrastructure investment by the government, particularly in housing, is encouraging private sector participation in related industries such as steel and cement.

India’s economic growth is not only benefiting domestic sectors but also enhancing the country’s integration into global value chains. With ongoing improvements in logistics and infrastructure, India’s competitiveness on the global stage is set to rise, attracting foreign investment. 

India’s strong external buffers further bolster its economic resilience. The country’s current account deficit narrowed sharply in fiscal 2023–24 to just 0.7% of GDP, down from 2.0% in the previous year. Foreign exchange reserves remain robust, exceeding $650 billion, and the country’s net external debt position is favourable, making it a small net lender globally. This reduces the risk of capital outflows and ensures that India can comfortably manage its balance of payments.

S&P Global report concluded by saying that India’s economic trajectory remains positive, with strong growth prospects supported by continued reforms, rising private investment, and global integration. However, challenges such as high food price inflation and fiscal constraints could slow momentum in the short term. The private sector will need to take a leading role in driving investment, while the government must address structural issues to keep inflation in check and maintain supportive monetary policies. As India’s economy continues to expand, it is poised to become an even more significant contributor to global growth, cementing its position as one of the world’s largest economies by the end of the decade.