India on track to become 3rd largest economy by FY31: S&P

India is on track to become the world’s third largest economy by fiscal year 2031 and accelerating structural reforms will be key to unlocking private investment, ratings agency S&P Global said in a report.

The country’s medium-term prospects are healthy and poised to deliver sustained growth, buoyed by likely structural reforms, opportunities in AI and more efficient agriculture, Douglas Peterson, president and chief executive officer at S&P Global, wrote in the ratings firm’s inaugural edition of the India Forward report.

The recent inclusion of India’s bonds on global bond indexes such as the JP Morgan Emerging Markets Bond Index and Bloomberg Emerging Market Local Currency Government Index will support foreign investment inflows into financial markets, Peterson said in the report.

“India’s inclusion in the global bond indexes opens new opportunities, portending sizable foreign inflows into government debt,” Peterson wrote. “At a time of increasing geopolitical competition, how India takes advantage of its long coastline for trade opportunities will be crucial. The same goes for the country’s multidimensional energy future, with growing energy demand and the need for sustainable technology investments.”

Foreign investment inflow is marginal when compared with the size of the overall bond market, but it paves the way for greater foreign participation in local financial markets and may result in more capital inflows in the long term, the report said.

The inaugural edition of the report has eight chapters focusing on India’s economic landscape, energy security and transition, the future of capital markets, digital disruption and artificial intelligence, geopolitical scenarios, trade, resources and supply chains, agriculture, and sustainability.

The HSBC India Purchasing Managers’ Index, which S&P’s market intelligence arm compiles, shows that India has seen the fastest growth in private sector output globally over the past year, the report said.

The Indian stock market is expected to continue its robust performance when compared with other countries in the region, with a favorable domestic regulatory environment bolstering the performance, it added.

The report suggested that India needs to harness global governance using technologies such as generative AI for economic growth.

India can aim to replicate the success of the digital infrastructure public-private partnership model, and the data shows significant public investment commitments to its AI sector, it said.

India’s energy strategy is crucial for its growth, balancing security, affordability, and sustainable technologies. S&P Global forecasts that India’s petroleum demand will rise over the next decade, necessitating policies for a net-zero future by 2070.

The report also emphasized  on leveraging India’s extensive 7,500-km coastline for increased trade and commerce, vital for handling over 90% of its imports, akin to maritime trade in South Korea, China, and Vietnam.