India a $10 trillion economy by 2030: Underestimation or business as usual?

Despite the big $10 trillion number, average per capita real income would still work out to only about $3,270 by 2030; India would still rank 28th on GDP per capita at purchasing power parity by 2050

Recently, economic affairs secretary Subhash Garg made headlines when he said that India is expected to be the world’s third largest economy with a GDP of $10 trillion by 2030.

On the face of it, the $10 trillion number sounds impressive, and that too in a short span of just 12 years. 

So what did Mr Garg factor in as the economy’s growth rate over this period while making this projection? And is it  a case of underestimation or is it business as usual?

At the end of 2017, India’s GDP at current prices stood at $2.59 trillion, according to the World Bank's latest data. 

Now, assuming that the economy grows at 11 per cent in nominal terms – a business as usual scenario - then India’s economy would touch $10.08 trillion target by 2030 - in line with Garg’s prediction.

This 11 per cent nominal growth assumes real economic growth to average seven per cent between 2018 and 2030 and inflation to average four per cent over the period. 

However, if growth were to accelerate to eight per cent in real terms, as the NDA government hopes it would, then at the end of 2030, India would be an $11.34 trillion economy. 

One must also point out that these estimates do not factor in changes in currency rates. An appreciation of the Indian currency would take these numbers even higher, as it did in the case of China.  

At the end of 2006, China’s GDP was estimated at $2.72 trillion by the World Bank. However, in a short span of three years, China’s GDP roughly doubled to reach $5 trillion in 2009. 

During this period, World Bank data show that the economy grew at an average real rate of 11.1 per cent a year. But its currency appreciated by 12.5 per cent which drove up the numbers in dollar terms even higher. 

Thereafter, it took another five years for China to cross the $10 trillion in 2014. 

A recent report by PWC suggests that India’s GDP is likely to touch $7.8 trillion (at constant 2016 USD) by 2030 and $28 trillion by 2050.  

The report takes a rather conservative estimate pegging India’s real per capita GDP growth to average around 4.1 per cent between 2016 and 2050. With the population expected to grow at an average of 0.7 per cent per during this period, that works out to a growth rate of 4.9 per cent in domestic currency between 2016 and 2050. 

Add to this another 2.8 per cent growth per year due to changes in the currency, the report assumes that GDP at market exchange rates will converge to GDP at purchasing power parity over time, and this leads to an average real GDP growth of 7.7 per cent over the whole period. 

However, one must caution, that despite the big $10 trillion number, the average per capita real income, is still likely to be around $3,270 at the end of 2030 (at 4.1 per cent real growth). As the report points out, that despite this meteoric rise, India would still rank 28th in GDP per capita in PPP terms in 2050