According to a recent estimate by Goldman Sachs, the 1.4 billion-person nation of India is on
track to overtake China as the second-largest economy in the world by 2075. This report
highlights the key drivers of India’s long-term economic growth and discusses the importance
of innovation, worker productivity, capital investment, and favorable demographics. In this
blog post, we examine the report’s key conclusions, investigate India’s demographics in
contrast to other nations, talk about potential threats to economic growth, and emphasise the
opportunities that the energy transition and green energy bring. Let’s dive in!
Factors affecting India’s Economic Growth:
A number of elements need to be taken into account in order to fully comprehend India’s
future economic trajectory. The Goldman Sachs analysis emphasises that innovation and
raising worker productivity will be essential for India’s economy to flourish, even though
demographics play a key role.
Greater output per unit of labour and capital must be the main goal. In addition, capital
investment will support sustained growth because of favourable demographics, rising
incomes, and deeper financial sector expansion. The population’s full potential will be
realised if India’s enormous labour force is used efficiently through increasing participation,
job creation, and upskilling.
Demographics: A Comparative Analysis:
In comparison to other Asian nations, India’s demographic change is taking place more
gradually and over a longer period of time. The slower drop in the death and birth rates is to
blame for this. Over the next 20 years, India is expected to have one of the lowest
dependency ratios among large economies. With an eye towards utilising the expanding
labour force, this presents a window of opportunity to invest in manufacturing capacity,
services, and infrastructure.
Construction of new infrastructure is currently booming, largely due to the government’s
emphasis on building new roads, railroads, and other types of infrastructure. According to the
report it is also the right time for the private sector to step up capacity-building efforts in both
manufacturing and services, which have the potential to generate employment and take use of
the big labour pool.
Threats to Goldman Sachs Research’s predictions for India’s economic growth:
If the rate of labour force participation does not rise, that would be the primary negative risk.
Over the past 15 years, India’s labour force participation rate has decreased. Given that
women’s labour force participation rates are much lower than men’s, having more
opportunities will help maintain labour force involvement rate, which will help in achieving
even greater potential growth.
Increased productivity growth can have a positive impact on growth. India has made
significant economic progress towards digitalization thanks to increased Internet and mobile
usage. However, you also have the largest biometric ID system in the world, known as
Aadhaar, which is a unique identification number that allows you to verify the identity of the
1.4 billion people in the globe both online and in person. Thus, it makes the delivery of public
services considerably simpler and more focused. It widens the credit net, leads to smaller
businesses getting more credit, and that can provide an upside to growth from an increase in
productivity.
Green energy and the energy transition:
India has made a big commitment to halting climate change and achieving net zero emissions
by the year 2070, which presents a significant opportunity for the nation. It is admirable that
the government is putting so much effort into switching to renewable energy sources, aiming
to generate 50% of the nation’s electricity from non-fossil fuels by 2030, and encouraging
electric cars and green hydrogen. The transition to green energy is a long-term investment
opportunity, but until it is finished, we will continue to rely on fossil fuels.
Conclusion
India has an undeniable potential for economic growth, which is fueled by favourable
demographics, capital investment, worker productivity, and innovation. A window of
opportunity for sustained growth is opened by the country’s steady demographic change,
infrastructure development, and private sector investment. But it’s crucial to solve issues like
low labour force participation rates and boost productivity through digitization.
Additionally, India’s dedication to the energy transition and adoption of green energy offers a
tremendous opportunity for the sustainability of the economy and environment.
