India's population of 1.4bn people, now the world's largest, is expected to fuel significant economic growth, Goldman Sachs Research concludes. The bank projects that by 2075, India will have the world's second-largest economy, surpassing not only Japan and Germany but also the United States.
Santanu Sengupta, Goldman Sachs Research's India economist, highlights the importance of boosting labor force participation and providing training and skills to tap into India's immense talent pool.
The demographic transition in India is happening gradually, presenting a longer time period for adjustments compared to other Asian countries. The focus is on the dependency ratio, which measures the non-working-age population dependent on the working-age population. India is expected to have one of the lowest dependency ratios among large economies for the next 20 years. This creates an opportunity for India to set up manufacturing capacity, foster service sector growth, and invest in infrastructure.
Goldman Sachs Research emphasizes the need for increased labor force participation, particularly for women, to maximize India's potential growth. Upside growth can also come from higher productivity, driven by digitalization and the unique identification system (Aadhaar) that facilitates easier public service delivery and credit access for smaller businesses.
India's economy is driven by domestic demand, with consumption and domestic investments as key drivers. Net exports have historically weighed on growth due to current account deficits, but recent progress has been made with increasing services exports. Commodity prices, particularly energy, impact India's macro economy, inflation, fiscal deficit, and current account balance.
India's energy requirements pose challenges, given its large population and energy imports. However, India has made strides in reducing macro imbalances and building resilience through structural improvements in current accounts and building reserve buffers.
Regarding green energy, India aims to achieve net-zero emissions by 2070 and have 50% of power generation capacity come from non-fossil sources by 2030. The government is actively promoting electric vehicles, green hydrogen, and renewable energy with a target of 500GW capacity by 2030.
While the transition to green energy presents a significant investment opportunity, India's reliance on fossil fuels will continue in the interim.
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