India on Track to Achieve $7 Trillion Economy by 2031, CRISIL Report Highlights Key Growth Drivers and Risks

India is poised to achieve a significant economic milestone, with its GDP projected to reach $7 trillion by fiscal 2031. This remarkable growth trajectory, outlined in a recent CRISIL report, anticipates a sustained real GDP growth rate of 6.7% annually between fiscal years 2025 and 2031.

Economic Projections and Global Standing

India’s nominal GDP is expected to rise from $3.6 trillion in fiscal 2024 to $7 trillion by fiscal 2031. At this level, the nation would move into the upper-middle-income category, with a per capita income approaching $4,500. According to S&P Global Market Intelligence, this growth would elevate India to the world’s third-largest economy, increasing its share of global GDP from 3.6% to 4.5%.

S&P credits India’s economic resilience to factors such as a narrowed current account deficit (0.7% of GDP in fiscal 2023-24) and robust indicators like strong Purchasing Managers’ Index (PMI) readings, rising GST collections, and productivity gains.

Resilience Amid COVID-19

Despite the disruptions caused by the COVID-19 pandemic, India remains on course to achieve its $5 trillion GDP target by fiscal 2027 and $7 trillion shortly thereafter. The CRISIL report attributes this resilience to:

1. Minimal deviation from pre-pandemic trends: Fiscal 2024’s nominal GDP was only 2.4% below its pre-pandemic trajectory.
2. Slower rupee depreciation: The rupee weakened by an average of 4% annually from fiscal 2021-2024, compared to 4.3% in the preceding decade.

Post-pandemic recovery has been bolstered by government infrastructure projects and household investments, although private-sector corporate investments have yet to see substantial growth.

Key Growth Drivers

CRISIL identifies several factors driving India’s growth:

1. Deleveraged Corporate Sector: Following years of deleveraging, private-sector capex potential has tripled over the past decade.
2. Healthy Banking System: Strong credit growth since fiscal 2023 and low gross non-performing assets (2.5% as of March 2024) highlight the banking sector’s robustness.
3. Innovative Financial Instruments: Mechanisms like InvITs, REITs, and restricted groups have facilitated greater capital inflows.
4. Reform-driven Efficiency: Policies like GST, the Insolvency and Bankruptcy Code (IBC), and the Real Estate (Regulation and Development) Act have improved the business climate.

Strategic Reforms for Sustained Growth

To maintain high growth rates, CRISIL emphasizes the need for next-stage reforms:

1. Land Reforms: Streamlined acquisition processes and transparent records to attract investments.
2. Simplified Labour Laws: Greater flexibility to encourage both domestic and foreign investments.
3. Agricultural Reforms: Investment in infrastructure, improved price discovery, and technological adoption to boost productivity.

Innovative initiatives, including the Digital Agriculture Mission and the development of over 2,000 climate-resilient crop varieties, have further enhanced food security and inclusive growth.

Potential Risks

CRISIL cautions that achieving the $7 trillion GDP target hinges on mitigating several risks:

1. Geopolitical Instability: Conflicts, particularly in the Middle East, could disrupt crude oil supplies and increase logistics costs.
2. Climate Change: Extreme weather events, such as the driest August in 123 years during 2023, have already impacted agricultural productivity.
3. Decarbonization Challenges: Balancing carbon reduction with industrial and infrastructure growth remains a significant challenge.
4. Global Indebtedness: Rising global debt, coupled with higher interest rates, could impact India’s trade and investment flows.

Conclusion

Despite these challenges, India is well-positioned to achieve its ambitious $7 trillion GDP target. CRISIL underscores that sustained productivity gains and strategic policymaking will be pivotal in driving this economic transformation. As India continues to strengthen its financial systems and implement structural reforms, its ascent in the global economic hierarchy appears inevitable.