Indian economy to touch $7 trillion mark by 2031: CRISIL Report

According to a report by CRISIL, the Indian economy is projected to achieve a medium-term growth rate of 6.7% on average between fiscal years 2025 and 2031, reaching a $7 trillion economy. This growth rate is expected to be similar to the 6.6% growth seen in the pre-pandemic decade, driven by increased capital expenditure (capex) and a boost in productivity.

Economic Growth Projection

The Indian economy is expected to grow at an average rate of 6.7% per year from fiscal year 2025 to 2031, reaching a total value of $7 trillion. This growth rate is nearly the same as the 6.6% growth India experienced in the decade before the pandemic. The report attributes this expected growth to increased capital expenditure (capex) (investment in infrastructure and development) and improvements in productivity (better output from the labor force and resources).

For the current fiscal year, CRISIL projects India’s GDP (Gross Domestic Product) will grow by 6.8%. However, high interest rates (cost of borrowing money) and stricter lending rules could reduce demand in urban areas. Additionally, efforts by the Indian government to reduce its fiscal deficit (through fiscal consolidation) may limit government spending, which could slow growth.

Inflation Outlook

The report expects inflation (the rate at which prices rise) to decrease to 4.5% in the year 2024-25, compared to 5.4% in the previous year. The reduction in inflation is primarily driven by a decrease in food prices, as food inflation is a key component of overall inflation. However, there are concerns about weather conditions (like floods or droughts) and geopolitical tensions (global political issues) that could disrupt inflation predictions. For example, if the weather disrupts crops or agriculture, it could lead to higher food prices, affecting inflation.

Geopolitical Risks

The report mentions that any further escalation in geopolitical tensions (such as wars or conflicts between countries) could disturb global supply chains (the flow of goods between countries), increase oil prices, and push up input costs for industries. This would contribute to higher inflation and reduce economic stability.

Current Account Deficit

The current account deficit (the difference between a country’s imports and exports of goods and services) is expected to stay within a safe range for India. The report predicts that this deficit will rise to 1% of GDP in the year 2024-25, up from 0.7% in the previous year. This increase is due to higher imports than exports, but India’s robust services exports (like IT services) and healthy remittances (money sent back to India by people working abroad) will keep the deficit manageable.

Export Growth

India’s merchandise exports (physical goods like machinery, chemicals, and textiles) grew significantly by 17.25% in October 2024, reaching $39.2 billion. This was driven by strong demand for engineering goods, electronics, chemicals, and textiles, showing that India’s manufacturing sector is becoming stronger.

Overall, India’s total exports (including both goods and services) reached $73.21 billion in October 2024, a 19.08% increase compared to the same month the previous year. This demonstrates the country’s growing strength in international trade. On the flip side, India’s imports (what the country buys from other nations) were estimated at $83.33 billion, reflecting a 7.77% increase from October 2023.

Conclusion

In summary, the CRISIL report is generally optimistic about India’s economic growth in the coming years, expecting steady progress driven by investments and productivity improvements. However, there are some risks, including potential challenges from inflation, weather disruptions, and geopolitical tensions. Despite these risks, the country’s strong export performance and remittance inflows should support the economy’s growth, and the current account deficit remains manageable.