By 2047, as India approaches the centenary of its independence, the nation could potentially evolve into a $55 trillion economy, according to Krishnamurthy Subramanian, Executive Director at the International Monetary Fund. Speaking at the BT India@100 event held at Bharat Mandapam in Delhi, Subramanian compared India’s potential growth trajectory to that of Japan and China. He noted that Japan’s economy expanded nearly 25-fold between 1970 and 1995, despite challenges such as the Vietnam War, oil shocks, and hyperinflation. Similarly, China’s economy grew 22 times from 1996 to 2021. Subramanian believes that while India might not replicate these exact figures, it is feasible for the Indian economy to increase 15-fold, from $3.3 trillion to $55 trillion.
Subramanian emphasized that maintaining an 8% annual growth rate in real terms, along with a stable 5% inflation rate, is crucial for achieving this ambitious goal. He pointed out that India’s inflation has gradually decreased from 7.5% to 5% since 2016, making the 5% target attainable in the long term. This assumption is built on the Reserve Bank of India’s inflation-targeting framework, which aims to keep inflation within a 2% to 6% range. Furthermore, Subramanian discussed the link between inflation and currency depreciation, explaining that higher inflation typically results in a faster depreciation of the currency to maintain its real value. Historically, the Indian rupee has depreciated at an annual rate of 3% to 3.5%, driven by the inflation differential between India and the US. However, with a current inflation rate of 5%, he anticipates a reduced depreciation rate of around 1%.
Using this economic model, Subramanian estimates that India could achieve a 12% nominal growth rate (comprising 8% real growth, 5% inflation, and a 1% reduction for currency depreciation). This would allow India’s GDP to double every six years, leading to four doublings from 2023 to 2047, ultimately reaching the $55 trillion target.
However, Subramanian acknowledges that reaching this milestone will require sustained efforts in several key areas. Firstly, India must continue the formalization of its economy, as the formal sector is significantly more productive than the informal sector. The ongoing development of digital infrastructure will be instrumental in this transformation. Additionally, boosting productivity within the formal sector is essential. While Indian firms currently lag behind their global counterparts in productivity, the growing wave of innovation and entrepreneurship offers a promising path forward. Another critical growth driver is credit creation. Although India’s private credit penetration remains below global standards, the combination of cleaned-up banks and a more formalized economy provides significant room for expansion.
In conclusion, Subramanian highlighted that through strategic investments in productivity, innovation, and credit growth, alongside maintaining stable inflation, India has the potential to emerge as a $55 trillion economy by 2047.
Editorial Team
