India's Economic Trajectory Towards Upper Middle-Income Status

In a recent report released by India Ratings and Research, projections suggest that India could ascend to the status of an upper middle-income economy by the fiscal years 2033–2036. The report outlines various scenarios under which this transition could occur, indicating the potential for India to burgeon into a $15 trillion economy by the fiscal years 2043–2047.

Path to a $5 Trillion Economy

Outlined within the report are diverse pathways for India's economic growth. To achieve the milestone of a $5 trillion economy by fiscal year 2030, with a per capita income of $3,467, the economy would need to maintain a real GDP growth rate of 6.25%, alongside GDP deflator growth of 3.5% and a 3.25% depreciation in the INR/USD exchange rate. However, to expedite the process and attain a $5 trillion economy by fiscal year 2029, with a per capita income of $3,530, a faster real GDP growth rate of 8% per annum would be necessary.

Economic Evolution and Aspiration

Sunil Kumar Sinha, Senior Director and Principal Economist at India Ratings and Research, highlighted the pivotal role of real GDP growth, inflation, and exchange rate dynamics in shaping India's economic trajectory. The report underscores India's journey from being classified as a low-income country by the World Bank until 2006, to transitioning to a lower-middle-income country thereafter.

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With India's per capita GDP standing at $2,390 in 2022, the aspiration to reach upper-middle-income status necessitates a per capita income within the range of $4,466 to $13,845.

Challenges and Caution

Despite the robust growth exhibited by the Indian economy, the report exercises caution, drawing upon cross-country experiences. It indicates that sustaining a real GDP growth rate of 7% per annum without significant support from global demand or trade presents a formidable challenge. Historical data reveals only two instances in the past 50 years where the Indian economy surpassed a 9.7% annual growth rate, highlighting the rarity and difficulty of maintaining such levels of growth over extended periods.

Per Capita Income Projections

Irrespective of whether India attains the ambitious $30 trillion target by fiscal year 2047, India Ratings' estimates suggest significant progress in per capita income, reaching $9,218 to $9,920 by fiscal years 2043 to 2047. This projection places India closer to the threshold of high-income country status, which is delineated by a per capita income of $13,846.

Alternative Perspectives

While India Ratings offers a certain trajectory, it is noteworthy that other rating agencies, such as Crisil, have presented alternative viewpoints. Crisil recently suggested that India could achieve upper middle-income status by 2031, anticipating a doubling of the economy to $7 trillion, with a projected growth rate of 6.8% in the upcoming fiscal year.

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As India navigates its economic trajectory, these projections offer insights into the potential pathways and challenges on the journey towards upper middle-income status and beyond.