India could surpass US, China to become world’s largest economy by century-end

If the OECD’s long term scenarios come to fruition, India could surpass the US and China to become the largest economy in the world by the end of the century. Bert Hofman, Senior Associate Fellow at MERICS and director of the East Asian Institute at the National University of Singapore (NUS), taking OECD’s projections, said that big changes are likely to occur in the second part of this century. 

As per OECD’s estimates released last year in September, India is expected to overtake the US by 2060, and will almost be twice the size of China by the end of the century. The US will slip to the third place in 2040s but catch up with China again in 2070. 

THE FORCES AT PLAY

OECD’s long-term estimates is essentially a study on how changed demographics change an economy. As per the UN Population Division projections that were released in 2024, China’s population declines much faster than was expected before, explained Hofman in a blog post.

Here’s what’s key: Most of China’s population decline is expected in the second half of the century. 

This decline puts China’s population at some 650 million people by 2100. Even with increased labour force participation, it would be less than 300 million – barely 40 per cent of India’s, and not that much larger than the US. 

India would still have the largest in the world in 2100, even with a decline starting in 2060, said Hofman. Labour force participation is also expected to rise rapidly, from 50 per cent of the working age population to 70 per cent by 2100. 

It is not only the population metrics, but also scenarios. OECD uses the Cobb-Douglas function with constant returns to scale, that predicts countries’ GDP to converge but the rate of convergence depends on “effective” labour and initial capital/labour ratio, explained Hofman. Another convergence is capital stock dynamics. In both the scenarios, India seems to be gaining more ground than China. 

These factors explain why China’s productivity growth is lower than India’s. 

China would even stop catching up with the US by mid-century as per OECD. 

CHINA’S WAY OUT

Nevertheless, China could beat the catch-up rule in labour efficiency by applying AI and robotics faster than India, and faster than the US, the frontier country. China may also grow faster if the share of labour stays below the level imposed by the model. 

China’s labour share would also rise over time, as indicated by its current policy orientation to boost consumption. 

NOT SET IN STONE

OECD scenarios are not destiny or set in stone, but merely scenarios. These are not predictions, and illustrate long-run challenges facing the global economy and how the landscape might evolve over time. 

“Nevertheless, demographics plays a big part, and India’s projected margin over China in size of GDP by the end of the century is very large, so it seems safe to say India will be the largest economy by then,” said Hofman in the post. 

NOT ONLY OECD…

It is not only OECD but also the Centre for Economics and Business Research (CEBR) that had presented in its report titled  'World Economic League Table 2024’ that India would surpass the US and China by end of the century. 

It forecast a monumental shift with India’s GDP anticipated to be 90 per cent larger than China’s and 30 per cent larger than the US. It outlined a steady growth trajectory for India, averaging 6.5 per cent from 2024 to 2028.