India poised to become third-largest economy by FY31

India is on track to become the third-largest economy by 2030-31, fueled by a projected annual growth rate of 6.7% and considerable opportunities in sectors like trade, agriculture, and artificial intelligence. Sustained reforms and increased foreign investment will be crucial for maintaining economic momentum and addressing key challenges ahead.

India is on track to become the world’s third-largest economy and transition into the upper-middle-income category by 2030-31, with an anticipated annual growth rate of 6.7% for the current fiscal year, according to a recent S&P Global report. The country achieved a GDP growth of 8.2% in FY2024, exceeding the government’s earlier estimate of 7.3%. The report emphasizes that sustained reforms are essential for maintaining this economic momentum, focusing on improving business transactions, enhancing logistics, attracting private sector investment, and reducing reliance on public capital.

The medium-term outlook remains promising, with significant opportunities in sectors such as trade, agriculture, and artificial intelligence. India’s youthful and dynamic workforce is well-positioned to influence the global economic landscape. The report also forecasts a vibrant equity market, supported by strong growth potential and improved regulatory frameworks. Following India’s inclusion in the JP Morgan emerging market indice, foreign investment in government bonds has surged, enhancing market dynamics. India’s weight in the JP Morgan indice is expected to reach the maximum threshold of 10% in the GBI-EM Global Diversified Index and approximately 8.7% in the GBI-EM Global Index, leading to likely passive inflows of $20-22 billion based on current assets under management.

However, high food price inflation, exacerbated by climate change, poses challenges for monetary policy and could increase investment costs. The report advocates for improved climate risk management and infrastructure in agriculture to ensure effective policy implementation. Additionally, it highlights the need for India to focus on infrastructure development and adopt geopolitical strategies, particularly along its extensive coastline, where nearly 90% of trade is seaborne. Robust port infrastructure is essential for managing rising exports and bulk imports.

The report also addresses India’s increasing energy demands, suggesting a shift toward sustainable technologies, such as renewables and low-emission fuels, to balance energy security with transition plans. Addressing critical infrastructure challenges like irrigation, storage, and supply distribution is vital for ensuring food security and economic stability. This study is part of the inaugural S&P Global India Research Chapter.