India is set to become the third-largest economy by 2030, according to the latest report by the rating agency S&P Global. Titled the 'Global Credit Outlook 2024: New Risks, New Playbook,' the report expects the country to be the fastest-growing major economy in the next three years.

The rating agency, however, says that a paramount test for India will be to become the next big global manufacturing hub. According to S&P Global, India, Vietnam and Mexico are the three emerging markets that could benefit from reconfiguring global supply chains owing to strong and stable trade ties with the US.

"Developing a strong logistics framework will be key in transforming India from a services-dominated economy into a manufacturing-dominant one. Unlocking the labour market potential will largely depend upon upskilling workers and increasing female participation in the workforce. Success in these two areas will enable India to realize its demographic dividend," the rating agency says.

According to the rating agency, a booming domestic digital market could also fuel expansion in the country’s high-growth startup ecosystem during the next decade, especially in financial and consumer technology. Meanwhile, the country is poised for growth in the automotive sector owing to infrastructure, investment and innovation, the report says.

The rating agency expects Asia-Pacific’s growth engine to shift from China to South and Southeast Asia. “We project China's GDP growth to slow to 4.6% in 2024 (2023: 5.4%), edge up to 4.8% in 2025, and return to 4.6% in 2026. We see India reaching 7.0% in 2026 (6.4%); Vietnam, 6.8% (4.9%); the Philippines, 6.4% (5.4%); and Indonesia remaining steady at 5%,” says the rating agency.

Meanwhile, the rating agency warns that as emerging markets such as India, South Africa and Mexico prepare for general elections next year, low levels of policy predictability can undermine investor sentiment and derail existing investment potential.

Notably, last month, Fitch Ratings raised India's medium-term potential growth estimate by 70 basis points to 6.2%, up from its earlier forecast of 5.5%.

"We have made large upgrades to India and Mexico, with the latter benefitting from a much better outlook for the capital-to-labour ratio. India’s estimate is higher at 6.2% from 5.5% and Mexico’s at 2.0% from 1.4%," Fitch Ratings said in its latest 'Emerging Markets' Potential Growth Estimate Lowered as China Slows' report.

Earlier this year, the International Monetary Fund (IMF) also said that India will emerge as the world's third-largest economy by 2027, hopping over Japan and Germany, as its GDP crosses $5 trillion. By 2047, India aspires to be a developed economy.

In October this year, the World Bank said India's GDP growth for FY23-24 will be at 6.3%, retaining its GDP estimate since its June forecast citing India's continued "resilience" despite the challenging global environment. In June, the World Bank had said India would remain the "fastest-growing economy" in FY24.

S&P Global on Indian Economy

India set to become the third-largest economy by 2030: S&P Global