scorecardresearchIndia likely to become $7 trillion economy by 2030; young workforce, digitalization
According to Deutsche Bank, India is shifting towards cleaner energy sources as the old ways of carbon-intensive industrialization are no longer sustainable.

India likely to become $7 trillion economy by 2030; young workforce, digitalization to help: Deutsche Bank

Updated: 11 Apr 2023, 06:08 PM IST
TL;DR.

India has become the world's most populous country, with a growing young population that presents promising demographic advantages.

As per the recent analysis by global brokerage firm Deutsche Bank, the Indian economy is projected to experience a remarkable growth trajectory in the upcoming years. Asia's third-largest economy is poised to double its current annual GDP from almost $3.5 trillion to $7 trillion by 2030.

In addition to demographics and consumption, which have been recognized as India's twin strengths, the brokerage highlights the other growth levers to achieve consistent high growth over a medium-term time frame. These include financialization, the transition to clean energy, and the digital revolution, which the brokerage identifies as key factors that will continue to drive India's growth trajectory in the current decade.

Deutsche Bank noted that India's young population is expected to have a positive impact on the economy, and the government's policy measures to spur growth are likely to complement it.

Digitization has significantly increased productivity, while financialization has substantially reduced the parallel economy. Additionally, the transition to clean energy is expected to enhance efficiency and contribute to the country's economic growth.

Let's look at each of these aspects in detail.

India will enjoy the largest workforce growth in the world

India has become the world's most populous country, with a growing young population that presents promising demographic advantages. Its working-age population is comparable to China's in 2007, and India is expected to experience the largest workforce growth of any country over the next decade, accounting for 22% of global workforce growth, the brokerage firm noted.

As India's affluence has risen, it has also become home to the world's largest middle class, providing purchasing power from within. The combination of a young population and a huge middle class bodes well for consumption over many decades to come.

Additionally, reforms have also paved the way for women in rural areas to participate in economic activities rather than only do household-related activities, which is a major demographic change.

Electricity, cooking gas, and clean water have released many free hours in a day from the previous need to fetch firewood and water.

Rather than simply providing welfare gains, the unoccupied time has been converted into a commercial enterprise, with self-employed activities such as handicrafts and poultry farming increasing the economic well-being of households, the brokerage stated.

Policy-led transformation

Creating jobs for such a large cohort can be a challenge for any government, perhaps more so in a democracy. A string of reforms has been executed that have increased productivity, reduced subsidy leakage, provided welfare, and created opportunities for economic enterprise, said Deutsche Bank.

The JAM Trinity (Jan Dhan account, Aadhaar, Mobile) has helped plug subsidy leakage and form the backbone of identity-proof systems across platforms nationally.

The government has made a massive push to create a road network, with 73,000 km of roads built over the past decade.

India is now fully electrified and has achieved 56% coverage for clean water in every house in every village.

The production-linked incentive scheme for the manufacturing industry has already benefited the electronic manufacturing sector and aims to create 6 million jobs across 14 sectors, the brokerage underscored.

On the cusp of an energy shift

According to Deutsche Bank, India is shifting towards cleaner energy sources as the old ways of carbon-intensive industrialization are no longer sustainable. This shift promises to enable sustainable economic development, improve energy security, and mitigate climate change.

India has made significant progress in providing access to electricity and clean cooking methods, achieving nearly 100% household access to electricity in 2019.

India has become the only G20 nation to achieve its 2030 renewable energy targets from COP21, nine years ahead of schedule in 2021, it highlighted.

Currently, 40% of India's installed capacity is fueled by renewable sources, and the country plans to add over 340 GW of renewable capacity by 2030, bringing the contribution of renewable capacity above 60%.

The addition is expected to come mostly from solar and wind energy, aided by declining capital costs. Green hydrogen can gradually replace coal in industrial usage, and EVs can replace transportation fuel.

The brokerage firm remains optimistic about the likelihood of most of these targets being met over the next few years.

The digital revolution

India's thriving information technology sector has enabled the digitization of most government services, including vertical services like payments and e-commerce marketplaces. The government's "super app" UMANG provides access to 1,682 services across the federal and state levels.

The Ayushman Bharat Digital Mission is integrating digital health infrastructure, and the Aarogya Setu app facilitated the world's largest-ever vaccination drive, with over 2.2 billion vaccinations enabled and validated.

The UPI is the most successful digital payments stack worldwide, with transaction volumes that are 2–10 times those of many developed nations, as per the brokerage's report.

The latest initiative, ONDC (Open Network for Digital Commerce), aims to revolutionize e-commerce with a network-centric model for connecting buyers and sellers. These initiatives have significantly increased productivity, lowered transaction costs, and propelled India into the digital era.

Financialization

Millions of previously unbanked people have been integrated into the Indian banking system through the JAM trinity, with over 481 million beneficiaries now having over $23 billion in bank accounts.

The implementation of the Goods and Services Tax (GST) has led to almost $20 billion being contributed to the government's coffers on a monthly basis.

Banking formalization, increasing compliance through digital payments and Covid-induced low interest rates has led to higher allocation into equity markets, both through mutual funds and directly.

With the number of custody accounts exceeding 108 million and retail investors now the largest public participant in the markets, there is still much scope for equity allocation to increase as per capita GDP rises, the brokerage pointed out.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

 

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India's digital economy growth
India's digital economy growth
First Published: 11 Apr 2023, 06:08 PM IST