Krishnamurthy Subramanian of IMF estimates India to be a $55 trillion economy by 2047 

By 2047, when India celebrates its 100th year of independence, the country could potentially become a $55 trillion economy, said Krishnamurthy Subramanian, executive director, the International Monetary Fund at the BT India@100 event, which was held at Bharat Mandapam in Delhi.

He drew comparisons with Japan and China to support his argument. For example, from 1970 to 1995, Japan's economy grew nearly 25 times, despite facing significant challenges like the Vietnam War, oil shocks, and hyperinflation. Similarly, China saw its economy expand 22 times between 1996 and 2021. Subramanian believes India can achieve a 15-fold increase from the $3.3 trillion economy to $55 trillion, albeit with more modest expectations compared to Japan and China.

The key to this growth, according to Subramanian, lies in maintaining an 8% annual growth rate in real terms, coupled with a stable 5% inflation rate. He explained that India's inflation has steadily declined from 7.5% to 5% since 2016, making a 5% inflation target reasonable for the future. This projection is based on the assumption that inflation will stay within the 2% to 6% band set by the Reserve Bank of India’s inflation-targeting regime.

Subramanian also highlighted the relationship between inflation and currency depreciation. Typically, higher inflation leads to a higher rate of currency depreciation to maintain the currency's real value or purchasing power. Historically, the Indian rupee has depreciated at a rate of 3% to 3.5% annually, largely due to the inflation differential between India and the US. However, with inflation now lower at 5%, Subramanian expects a corresponding reduction in the rate of depreciation, down to around 1%.

Using this framework, he estimates that India could achieve 12% growth in nominal terms (8% real growth plus 5% inflation, minus 1% for currency depreciation). This means that India’s GDP could double every six years, leading to four doublings from 2023 to 2047, ultimately reaching the $55 trillion mark.

Subramanian acknowledges that achieving this target will require sustained efforts in several areas. First, India must continue formalizing its economy, as the formal sector is significantly more productive than the informal one. The digital infrastructure being developed will play a crucial role in this transformation.

Additionally, enhancing productivity within the formal sector is vital. Indian firms are currently less productive than their global counterparts, but innovation and entrepreneurship, which have been gaining momentum, could bridge this gap. Credit creation is another critical driver of growth. India's private credit penetration is still far below global standards, but with cleaned-up banks and a formalized economy, there is significant potential for expansion.

In summary, with strategic investments in productivity, innovation, and credit expansion, and by maintaining a stable inflation rate, India has the potential to grow into a $55 trillion economy by 2047 said Subramanian.