India Set to Become the World’s Third-Largest Economy by 2028: Morgan Stanley

India is on track to become the world’s third-largest economy by 2028, overtaking Germany, according to a report by Morgan Stanley. The country’s economic expansion is expected to be driven by macroeconomic stability, infrastructure development, and a growing consumer market.

India’s Economic Growth Projection

In 2023, India’s economy was valued at $3.5 trillion. By 2026, it is projected to grow to $4.7 trillion, making it the fourth-largest economy globally, behind the US, China, and Germany. By 2028, as India’s GDP reaches $5.7 trillion, it is expected to surpass Germany to claim the third spot.

Over the years, India has steadily climbed the global economic rankings. It was the 12th largest economy in 1990, slipped to 13th in 2000, but then progressed to 9th in 2020 and 5th in 2023. The country’s share in global GDP is projected to increase from 3.5% in 2023 to 4.5% by 2029.

Three Possible Growth Scenarios by 2035

Morgan Stanley outlines three potential scenarios for India’s economic future:

Bear Case: GDP reaches $6.6 trillion by 2035

Base Case: GDP expands to $8.8 trillion

Bull Case: Economy surges to $10.3 trillion

Similarly, India’s per capita income is expected to grow:

Bear Case: $4,247 by 2035

Base Case: $5,683

Bull Case: $6,706

Key Factors Driving India’s Growth

Morgan Stanley attributes India’s rise to several foundational factors:

Demographic Strength: A young and growing population

Democracy: A stable political system that supports economic policies

Infrastructure Development: Improved roads, railways, and digital connectivity

Entrepreneurship: A rising class of business leaders

Energy Transition: A shift toward sustainable energy

Credit Expansion: Rising credit-to-GDP ratio

Manufacturing Growth: Increasing contribution of manufacturing to GDP

As a result, India is set to become one of the world’s most attractive consumer markets.

Current Economic Trends and Outlook

India’s economic growth, which slowed in the second half of 2024, is expected to recover due to fiscal and monetary policy support. Morgan Stanley forecasts GDP growth at 6.3% for FY2024-25 and 6.5% for FY2025-26.

Factors Boosting Economic Recovery

Rising Urban Consumption: Income tax cuts are expected to boost spending in cities.

Strong Rural Demand: Rural consumption levels remain positive.

Capital Investments: Public and household investments are driving growth, while corporate investments are recovering.

Stable Inflation: Consumer price inflation (CPI) has eased to around 4%, driven by lower food prices.

Resilient Trade: Strong service exports help balance weak global demand for goods.

The current account deficit is expected to remain low, staying below 1% of GDP in FY2025-27, which signals economic resilience.

Monetary and Fiscal Policy Adjustments

The Reserve Bank of India (RBI) has begun easing monetary policy. After lowering interest rates in February, another 25 basis points (bps) rate cut is expected in April.

On the fiscal front, the government aims to stimulate economic growth by increasing capital expenditure while maintaining fiscal discipline. Income tax cuts are expected to boost consumption.

External Risks and Global Factors

Despite India’s strong economic outlook, some external risks remain.

Global Trade Policies: The US trade and tariff policies could impact India’s exports.

US Dollar Strength: A strong dollar could affect financial stability.

Federal Reserve Policies: Changes in US interest rates could impact global capital flows.

Global Recession Risks: A slowdown in global growth could hinder India’s economic momentum.

Morgan Stanley warns that a global recession or near-recession in 2025 could affect Indian equities and slow economic growth. However, if India maintains macro stability and continues infrastructure development, it is well-positioned for long-term success.

Conclusion

India’s economic trajectory remains strong, with robust domestic demand, infrastructure improvements, and stable policies driving growth. If the projections hold, India will emerge as the world’s third-largest economy by 2028, solidifying its place as a key player in the global economy.