India could surpass US to be world's second-biggest economy by 2075. Here's how

India will surpass the US to become the second largest economy in the world by 2075, Goldman Sachs said in its latest report.

Currently, India is the fifth largest economy and is expected to leave behind Germany, Japan and the United States. China enjoys the top-most spot.

But how?

Goldman Sachs said with India having world’s largest population of 1.4 billion people, the country’s GDP is forecast to expand “dramatically”.

“For India, a key to realising the potential of that growing population is boosting participation within its labour force, as well as providing training and skills for its immense pool of talent,” says Santanu Sengupta, Goldman Sachs Research’s India economist.

“Over the next two decades, the dependency ratio of India will be one of the lowest among regional economies,” Sengupta said as he highlighted that the population of the country has one of the best ratios between its working-age population and its number of children and elderly.

“So that really is the window for India to get it right in terms of setting up manufacturing capacity, continuing to grow services, continuing the growth of infrastructure.”

India’s GDP forecast

As per Goldman Sachs, by 2017, India’s GDP is expected to be worth $52.5 trillion, higher than the US’ #51.5 trillion.

Factors that will help

Innovation: The investment bank stated that it is not just GDP, innovation and increasing worker productivity are going to be important for India.

Capital investment: Goldman Sachs said capital investment will also be going to be a significant driver of growth for India going forward. “Driven by favorable demographics, India’s savings rate is likely to increase with falling dependency ratios, rising incomes, and deeper financial sector development, which is likely to make the pool of capital available to drive further investment,” it added.

“The government has done the heavy-lifting in the recent past. But given healthy balance sheets of private corporates and banks in India, we believe that the conditions are conducive for a private sector capex cycle,” Goldman Sachs said in its report.

Favourable demographics: The report said favourable demographics will add to potential growth and India’s large population will be opportunity.

But there’s a challenge

Goldman Sachs said the challenge would be to use the country’s labour force “productively”, by increasing the labour force participation rate. “That will mean creating the opportunities for this labour force to get absorbed and simultaneously training and upskilling the labour force,” it said.

With inputs from agencies