The UN expects global growth to slow to 2.3% this year as trade tensions and geopolitical risks weigh heavy. Apparently, though, India never got the memo.
Having already overtaken Italy, France, and the UK, the IMF expects India to surpass Japan to become the world’s fourth-largest economy in 2025. [1]
From here, the nation is expected to leapfrog Germany by 2028. Then, only China and the US will remain. In a world short on momentum, India presents a clear asset allocation opportunity. With this in mind, let’s look at what exactly is driving the country forward…
Wealth Growth
The most powerful force behind India’s rapid economic transformation is increasing domestic consumption. And it’s a trend that’s only accelerating.
Between FY13 and FY24, India’s private consumption grew at a 7.2% CAGR from $1 trillion to $2.1 trillion. And with the number of Indians earning over $10k annually forecasted to triple from 60 million today to 165 million by 2030, consumption levels are projected to grow at a similar pace.
Rising wealth is the key driver, with India’s large working-age population experiencing a transformational shift through urbanisation supported by vast infrastructure investment. However, we’ve seen the dawn of several new tailwinds in 2025 with the power to amplify this collective spending power even further:
- With Indian households holding more gold than even the World Bank, wealth is increasing passively as a result of soaring prices.
- A recent wave of unprecedented government tax cuts is putting more disposable income in the pockets of workers across the nation.
- Inflation is beginning to soften, with the RBI’s long-awaited rate hike cycle already helping the rate of price growth to reach its lowest level in five years.
Together, these factors are expected to drive a sharp rise in India’s nominal GDP per capita from $2.8k today to $4.5k by 2030, as estimated by the IMF. As GDP per capita grows and individuals’ incomes rise, their disposable income expands, leading to a concurrent increase in consumer spending on discretionary and essential goods and services such as leisure activities, groceries, healthcare and education.
India on the Global Stage
Still, middle class expansion isn’t the only reason India is poised for rapid economic growth.
As one of the world’s largest crude oil consumers, importing over 85% of its required oil, the nation also stands to benefit from the ongoing fall in the price of crude oil. In fact, if prices continue to hover around $60 a barrel, down from around $80 a year ago, India’s total import bill savings would exceed the value of all of its net goods and services exports to the US.
Luckily, any such decline in US demand is much less of a threat to the Indian economy than to that of its neighbour China.
For one thing, India exports far less to the States – in 2024, its US exports totalled $40 billion while China’s totalled $439 billion. But alongside this, the country is steadily strengthening its position on the global trading stage.
A trade deal with the UK is now in place and trade agreement discussions with the US and the EU are ongoing. Such global economic integration is expected to support growth in manufacturing and services, creating millions of jobs, and strengthening the rupee.
A Bright Future
Put it all together – the increasing wealth, the reduced oil bill, the new role on the global trade stage – and it’s no surprise India is bucking the global trend towards slowing growth.
Interest in the nation is already reigniting, with foreign investors breaking a prolonged period of selling to become net buyers of India over recent months. With GDP growth forecast to reach an impressive 6.7% this year, we expect to see these flows increase even further over the coming months.
Comment provided by Andy Draycott is portfolio manager of the Chikara Indian Subcontinent Fund
1 Source (basic data): IMF World Economic Outlook (April 2023) *Data pertains to fiscal year. For example, 2022 implies 2022-23 and so on.
