India can become world’s second-largest economy by 2031: RBI Dy Governor
India is to overtake the US in terms of purchasing power parity by 2048 to become the second-largest economy of the world.
NEW DELHI: Given its innate strengths and the resolve to achieve its aspirational goals, India can emerge as the second largest economy by 2031 and the largest economy of the world by 2060, Deputy Governor of Reserve Bank of India Michael Debabrata Patra said in an event in Mussoorie on Friday.
“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 the deputy RBI governor.
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.
Explaining why PPP is the better measure, Patra says that the current exchange rates determined in the market are subject to bouts of volatility and idiosyncratic behaviour that makes them diverge from reality. Hence, their application as denominators to GDP measured in national currencies may not be appropriate for cross-country comparisons, argues Patra.
“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 says.
India currently is the 5th largest economy in terms of exchange rate with 3.6 trillion USD GDP. However, in PPP terms, India is the 3rd largest economy behind China (34.6 trillion USD) and the US (27.4 trillion USD) with a GDP size of 14.5 trillion USD.
The deputy RBI governor lists out several positive energies that are helping to shape the vision of India’s future over the next few decades.
First, there is a traditional advantage that is likely to continue working in favour of India’s growth prospects, he says.
“The development process has been predominantly driven by capital accumulation, which makes investment the main lever of growth. The investment rate peaked at close to 40 per cent of GDP in 2010-11 but moderated unevenly thereafter until 2020-21. During 2021-23, however, it has stabilised around 31.2 per cent and is showing signs of acceleration,” he says.
The second reason he cites is the macroeconomic and financial stability that India is witnessing.
“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,” says Patra.
On financial stability, Patra says that gross non-performing assets (GNPAs) in the banking system have steadily fallen from their peak in March 2018 to 2.8 per cent of total assets by March 2024. Adjusted for provisions, net NPAs are just 0.6 per cent. Capital and liquidity buffers are well above the regulatory norms. Profitability is high and this virtuous circle has supported a credit upswing.
He also predicts that the general government debt which is estimated at 81.6% of GDP at the end of March 2024 is expected to decline to 78.2% by end of this decade. He cites the digital revolution in India as a great growth multiplier.
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