India will become the most sought-after consumer market, undergo a major energy transition, and witness a rising credit-to-GDP ratio.

India is poised to surpass Germany and become the world’s third-largest economy by 2028, driven by robust economic growth, strong policy frameworks, and improving infrastructure, according to a recent Morgan Stanley report.

Currently valued at $3.5 trillion in 2023, India’s economy is projected to expand to $4.7 trillion by 2026, making it the fourth-largest economy globally, behind the United States, China, and Germany. By 2028, India is expected to overtake Germany, reaching an estimated $5.7 trillion in economic output.

India’s economic journey has been remarkable. In 1990, the country ranked as the 12th largest economy before slipping to 13th place in 2000. However, it rebounded to 9th place by 2020 and achieved the 5th position in 2023. This rapid ascent is underpinned by macroeconomic stability, a burgeoning consumer market, and an expanding entrepreneurial ecosystem.

Morgan Stanley forecasts India’s share in the global GDP to rise from 3.5% in 2023 to 4.5% by 2029. The investment bank outlines three possible growth scenarios:

• Bear Case: India’s GDP grows from $3.65 trillion in 2025 to $6.6 trillion by 2035.
• Base Case: GDP reaches $8.8 trillion by 2035.
• Bull Case: India’s economic expansion accelerates to $10.3 trillion by 2035.

Additionally, GDP per capita is expected to rise from $2,514 in 2025 to between $4,247 and $6,706 by 2035, depending on the growth scenario.

Morgan Stanley attributes India’s economic momentum to several foundational factors, including:

• Demographic Advantage: A growing workforce and expanding middle class fueling consumption.
• Policy Reforms: Macroeconomic stability driven by proactive fiscal and monetary policies.
• Infrastructure Development: Better transport, digital connectivity, and logistics boosting productivity.
• Manufacturing and Services: Growth in both sectors contributing to higher GDP output.
• Financial Inclusion: Expanding credit access and rising private investments.

According to the report, India will become the most sought-after consumer market, undergo a major energy transition, and witness a rising credit-to-GDP ratio. The country’s services sector, particularly IT and financial services, is expected to drive further economic expansion.

In the near term, India’s economy is showing signs of recovery after a temporary slowdown in the second half of 2024. High-frequency indicators suggest an improvement in economic activity, supported by fiscal and monetary policy measures.

Morgan Stanley projects India’s GDP to grow at 6.3% in the current fiscal year (ending March 2025) and 6.5% in the next fiscal year. Consumption recovery is expected to be broad-based, driven by income tax cuts, strengthening rural demand, and rising urban spending. Inflation has moderated, with headline CPI tracking close to 4%, easing concerns over price pressures.

While India’s economic trajectory remains strong, external factors pose potential risks. These include global trade policies, the strength of the U.S. dollar, Federal Reserve interest rate decisions, and overall global economic growth. A global slowdown or recession could impact Indian equities and growth momentum.

On the domestic front, fiscal prudence at both the central and state levels remains crucial to maintaining macroeconomic stability. However, with strong policy support and favorable economic conditions, India appears well-positioned to emerge as the third-largest economy in the world by 2028.