India’s Economic Growth Projections and Stock Market Optimism

India’s finance ministry has projected that the country could become the world’s third-largest economy by 2027, boasting a gross domestic product (GDP) of $5 trillion. The optimistic outlook precedes the release of an interim budget later in the week.

In a report issued on Monday, the finance ministry anticipates that India’s economy is set to grow at or above 7% in the fiscal year 2024, marking the third consecutive year of such robust GDP growth. The current GDP of India stands at $3.7 trillion, and if the projected growth targets are met, India will achieve the milestone of becoming the third-largest economy globally.

V Anantha Nageswaran, India’s chief economic advisor, attributes the country’s economic strength to the reforms and measures implemented by the government over the past decade. Investments in both physical and digital infrastructure have played a pivotal role in boosting the supply side and manufacturing, contributing to the anticipated 7% real GDP growth in fiscal year 2025.

The report emphasises the government’s long-term vision, with a goal to transform India into a developed country by 2047. The document released on Monday is not the Economic Survey of India, typically prepared by the Department of Economic Affairs ahead of the Union Budget.

While the Union Budget is scheduled for release after the general election between April and May, the interim budget, to be presented by Finance Minister Nirmala Sitharaman, is not expected to include major changes to spending or tax policies.

Goldman Sachs predicts that India could become the world’s second-largest economy by 2075, surpassing Japan, Germany, and even the United States. Presently, India ranks as the world’s fifth-largest economy, following the U.S., China, Japan, and Germany.

The positive economic outlook has also translated into a thriving stock market in India. The Nifty 50 index rose over 20% in 2023, breaching the 22,000 mark for the first time this month. Investors are buoyed by optimism regarding India’s growth prospects, increased liquidity, and domestic participation. Additionally, expectations of policy continuity ahead of the general election, coupled with speculation of interest rate cuts by the Reserve Bank of India in the second half of the year, further fuel the positive sentiment in the stock market.