“China should overtake the US to become the largest economy in the world by 2020, then be overtaken by India by 2050,” financial services group Citi said in the report.
The estimates are based on purchasing power parity (PPP), an economic growth indicator that takes into account the purchasing power of each country’s currency, instead of the prevailing exchange rate conversion.
Going by the report, India would surpass the US — currently the world’s largest economy — to become the second largest by 2040.
“We expect India to overtake Japan to become the third largest economy in the world by 2015,” it noted.
In terms of PPP, Indian economy — valued at USD 3.78 trillion — was at the fourth place in 2009. The country was behind the US, China and Japan, according to the World Bank.
During the same period, developing Asia’s share is predicted to rise from 27 per cent to 49 per cent in 2050.
Citi emphasised that a number of major changes within a relative short time are required for India to meet future challenges.
Noting that India’s infrastructure has to be improved, Citi said the country needs to relax its “hostile attitude towards FDI“, if it is to reap the benefits of rapid cross-border technology transfer that China has benefited from so greatly.
“…a further round of serious deregulation of the domestic economy and further trade liberalisation are required,” it noted.
The report said India’s population of working age is expected to grow by 40.7 per cent between 2010 and 2050.
India has successfully raised its aggregate savings rate to levels that would allow sustained high levels of domestic capital formation (the domestic saving rate averaged 34.4 percent over 2006-2009 and the gross domestic investment rate 32.4 percent), the report added.