Lots of traffic and crowds were observed the first weekend of 2021 in Kolkata, West Bengal, outside the Alipore Zoo.
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According to a recent report by BofA Securities, India will conquer Japan by 2031 as the third largest economy in the world behind the US and China.
The Bank of America Investment Banking division previously predicted this would happen in 2028, but said Monday the economic shock of Covid-19 would push the timeline back three years.
“We now expect India to appear as the third largest economy in the world in 2031 / FY32, from 2028 earlier, following the Covid 19 shock,” BofA Securities economists Indranil Sen Gupta and Aastha Gudwani wrote in the report.
The researchers noted that India would have to reach nominal GDP in dollars in Japan by 2031 if it were to grow by 9% annually – assuming that real GDP growth is around 6%, an average inflation rate of 5% and 2% depreciation. If growth reaches 10%, India could possibly top Japan by 2030, the report said.
India has suffered an economic crisis due to the prolonged exclusion last year of delaying the spread of the coronavirus outbreak. Millions of jobs have been lost, many of them permanently. While the economy is recovering, the rating agency S&P said that India has a permanent loss of about 10% of the economic economy output compared to its pre-pandemic path.
Yet the structural drivers of economic growth are strengthening, according to the BofA Securities report. These include the deepening of financial maturity, the rise of mass markets due to rising incomes and an impending demographic dividend, which occurs when a country experiences accelerated growth due to declining fertility and mortality rates. Mass market refers to markets where goods are produced in large quantities for a mass of people.
Declining birth rates imply that there are fewer people to support as they get older. This trend is also known as a declining dependency ratio and allows countries to divert scarce resources to other areas that could accelerate development. BofA Securities said a rising labor supply would lower India’s dependency ratio over ten years. This is expected to help maintain high savings and investment rates.
The report predicts that the skilled workforce in India will grow as large-scale, Covid-related job and income losses are reversed once things return to normal, driven in part by increasing employment in the services sector. The credit-to-GDP ratio, which is a proxy for financial maturity, is expected to rise over the decade, while the rise of the mass market will drive down commodity prices.
Two new catalysts are expected to support the structural changes that could drive economic growth in India, according to the report. First, the Reserve Bank of India has built up foreign exchange reserves in the country, which is likely to help stabilize the Indian rupee and prevent the weakening of the currency during global shocks. It will also lead to a greater inflow of portfolios, and it will lower the borrowing costs for Indian companies.
“Furthermore, the long-term easing of the RBI is ultimately holding back real lending rates, which have had a stumbling block to growth since 2016,” the economist wrote, adding: “We view finance as the primary beneficiary of the India growth story.”
A recent increase in coronavirus cases in India has raised new concerns about a second wave of infection, even as the country is in the process of vaccinating around 300 million people at the current stage.