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India is set to become the third-largest economy by 2030, according to S&P Global Ratings.
In its latest Global Credit Outlook, the rating agency noted that the paramount test for the country would be to become the next global manufacturing hub.
“Developing a strong logistics framework will be key in transforming India from a services-dominated economy into a manufacturing-dominant one,” it said
S&P pointed out that India needed to upskill its workforce and increase female labour force participation to take advantage of its labour market potential.
India’s female labour force participation in urban areas crossed 24% for the first time in the second quarter of FY24. Data released last week showed female unemployment declining to its lowest level over four years.
“Success in these two areas will enable India to realize its demographic dividend. A booming domestic digital market could also fuel expansion in India’s high-growth startup ecosystem during the next decade, especially in financial and consumer technology,” the American credit rating agency highlighted.
The agency expects the automotive sector to be a significant driver of growth as well.
In a report last month, S&P raised India’s growth forecast, projecting the country as the fastest-growing major economy for the next three years.
India’s economy grew faster than expected at 6.7% in the second quarter, prompting economists to raise their full-year forecast beyond RBI’s estimate of 6.5%.
S&P Global Ratings projects the Indian economy to grow 6.4% in FY24 and FY25.
“Many emerging markets (EMs) are bound to navigate the challenging global macroeconomic backdrop in 2024 better than their peers. Structural trends that will allow these EMs to mitigate the impact from global headwinds are nearshoring (Mexico, India, and Vietnam) and energy transition (Indonesia, Chile, and the Philippines, among others),” S&P said.
S&P expects the Indian economy to pick up pace in FY26, with growth rising to 7% by FY27.
The agency expects the policy rate to decline to 5.5% by the end of next year, with inflation nearing RBI’s 4% mark.
The Reserve Bank of India is likely to hold the policy rate at 6.5% for the fifth consecutive at its meeting later this week.
Changing guard
In another report released Tuesday, the agency noted that the growth pattern in the Asia Pacific region was shifting from China to South and Southeast Asia.
It projected further slowdown in China growth to 4.6% from 5.4% in 2023, whereas expected growth to pick up in India, Vietnam and Philippines.
But its also underlined the rising risks from geopolitical tensions could upset growth.
“While Asia-Pacific’s economic growth remains broadly resilient, buoyed by robust labour markets and service sectors, the growth momentum is susceptible to risks of energy shocks,” it said.
S&P has lowered Asia Pacific’s growth forecast down to 4.2% in FY24.
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