MUMBAI, India - British brokerage HSBC has released a new report that has claimed that in the next ten years, India is likely to overtake Japan and Germany to become the third largest economy in the world.
The report suggested that the country would need to be consistent in reforms and would have to focus more on the social sector.
The HSBC report pointed out that social capital is currently "insufficient" in the country and spending on aspects like health and education "is not just desirable for its (India's) own sake, but is also central to economic growth and political stability."
Further, it suggested that the country would need a lot of focus on ease of doing business and related aspects like contract enforcements.
HSBC economists said in a note, "In over the next ten years, India will likely surpass Germany and Japan to become the world's third largest economy in nominal USD and the transition will happen even more quickly on a PPP (purchasing power parity) basis."
The report pointed out that demographics and macro stability are key strengths for the country by the brokerage.
Further, it estimated that India will be a USD 7 trillion economy in 2028, as compared to less than USD 6 trillion and USD 5 trillion for Germany and Japan.
According to figures for the fiscal 2016-17, India's GDP is around USD 2.3 trillion and it stands at the fifth spot in global rankings.
HSBC has said that the growth rate, which will be lower in FY18 as compared to the 7.1 percent recorded a year back, due to the introduction of Goods and Services Tax (GST).
It predicted that the country will recover from next year in a sustainable fashion.
Further, it has made a case against "stray reforms," calling them "harmful."
The report noted, "There are limits to one-off reforms. India needs to create an ecosystem of continuous change."
Commenting on GST, HSBC said the informal enterprises that create a bulk of jobs in the country may respond to higher taxation by shutting shop or laying off workmen.
It also said that current concerns about jobless growth would be dealt with as the e-commerce sector will create 12 million jobs over the next decade, which is half of the 24 million shortfalls.
It said, another avenue of job creation can be the social sector, where a lot of work needs to be done on health and education fronts.
Further, it noted that India will continue to be a services oriented economy but needs to pay extra attention to manufacturing and farm sectors as well, adding that it would be desirable to maintain the contribution of manufacturing, agriculture, and services at the current levels.
HSBC has said that the Indian story will be different from the export-oriented one of China's, pointing out that domestic consumption with over 550 million consumers will be the standout factor.
It said that the other hallmarks of the India story over the next decade, apart from the services, will be the higher investment and capital goods flows as its focus on manufacturing increases.
It said that Indian consumers forcing foreign brands to turn 'glocal' and a two-way human capital footprint that will see many skilled people traveling overseas.
In the report, it pointed out, "It (India) needs to broaden its specialization (beyond just IT in business and cricket in sports) if it wants to run harder and fly higher."