India, which appears to have been pushed back to being the world's sixth biggest economy in 2020, will again overtake the UK to become the fifth largest in 2025 and race to the third spot by 2030, a think tank said on Saturday. India had overtaken the UK in 2019 to become the fifth largest economy in the world but has been relegated to 6th spot in 2020.
"India has been knocked off course somewhat through the impact of the pandemic. As a result, after overtaking the UK in 2019, the UK overtakes India again in this year's forecasts and stays ahead till 2024 before India takes over again," the Centre for Economics and Business Research (CEBR) said in an annual report published on Saturday.
The UK appears to have overtaken India again during 2020 as a result of the weakness of the rupee, it said.
The CEBR forecasts that the Indian economy will expand by 9 per cent in 2021 and by 7 per cent in 2022.
"Growth will naturally slow as India becomes more economically developed, with the annual GDP growth expected to sink to 5.8 per cent in 2035."
"This growth trajectory will see India become the world's third largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030," it said.
The UK-based think tank forecast that China will in 2028 overtake the US to become the world's biggest economy, five years earlier than previously estimated due to the contrasting recoveries of the two countries from the COVID-19 pandemic.
Japan would remain the world's third-biggest economy, in dollar terms, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth.
The CEBR said India's economy had been losing momentum even ahead of the shock delivered by the COVID-19 crisis.
The rate of GDP growth sank to a more than ten-year low of 4.2 per cent in 2019, down from 6.1 per cent the previous year and around half the 8.3 per cent growth rate recorded in 2016.
"Slowing growth has been a consequence of a confluence of factors including fragility in the banking system, adjustment to reforms and a deceleration of global trade," it said.
The COVID-19 pandemic, the think tank said, has been a human and an economic catastrophe for India, with more than 140,000 deaths recorded as of the middle of December.
While this is the highest death toll outside of the US in absolute terms, it equates to around 10 deaths per 100,000, which is a significantly lower figure than has been seen in much of Europe and the Americas.
"GDP in Q2 (April-June) 2020 was 23.9 per cent below its 2019 level, indicating that nearly a quarter of the country's economic activity was wiped out by the drying up of global demand and the collapse of domestic demand that accompanied the series of strict national lockdowns," it said.
As restrictions were gradually lifted, many parts of the economy were able to spring back into action, although output remains well below pre-pandemic levels.
An important driver of India's economic recovery thus far has been the agricultural sector, which has been buoyed by a bountiful harvest.
"The pace of the economic recovery will be inextricably linked to the development of the COVID-19 pandemic, both domestically and internationally," it said.
As the manufacturer of the majority of the world's vaccines and with a 42-year-old vaccination programme that targets 55 million people each year, India is better placed than many other developing countries to roll out the vaccines successfully and efficiently next year.
"In the medium to long term, reforms such as the 2016 demonetisation and more recently the controversial efforts to liberalise the agricultural sector can deliver economic benefits," the think tank said.
However, with the majority of the Indian workforce employed in the agricultural sector, the reform process requires a delicate and gradual approach that balances the need for longer-term efficiency gains with the need to support incomes in the short-term.
The government's stimulus spending in response to the COVID-19 crisis has been significantly more restrained than most other large economies, although the debt to GDP ratio did rise to 89 per cent in 2020.
"The infrastructure bottlenecks that exist in India mean that investment in this area has the potential to unlock significant productivity gains. Therefore, the outlook for the economy going forwards will be closely related to the government's approach to infrastructure spending," it added.