India’s Transformation Through to 2040 Overview of the Metrics of Industrial India vs. Information Age India

In 1991, India opened its economy to the rest of the world and reversed decades of slow and insular growth implementing a series of far-ranging reforms. There have been ups and downs in the years since; today however, a little over 25 years later, the effects of this liberalisation are clearly visible with India enjoying an increasingly vibrant domestic economy, a large and rapidly growing middle class, significant foreign investment inflows, and a high degree of political stability. Following one of the down swings, recent changes by the current administration have recovered some of the economic losses of the previous one and placed the India story back on the agenda of international investors. As the fastest growing and currently sixth largest economy in the world, India appears set to become a top three global economy and a middle-income country over the next c.25 years. This economic growth is set to transform the country, its society and its place in the world, creating a prosperous democracy of 1.4bn with a diversified and globalised economy. This month’s Sign of the Times plots India’s projected journey through to 2040 across five key economic and social metrics, benchmarking the country’s transformation to a series of global comparisons.

It is important to keep in mind though that while the direction of development appears set, India’s rate of development is by no means locked in yet. The country today certainly seems to have built significant momentum supported by positive macro-economic indicators but the journey to 2040 is still set to have the challenges one should expect from so large and diverse an economy. In today’s shifting world, many of the well-trodden development paths previously followed by others will likely not be available to India and the country is likely to face fierce competition from global powers such as China and potentially the United States, too. India’s big choice is whether if embarks on an industrial path, much like China, or a different one, more fit for service and knowledge era that is emerging. If it succeeds in its development path, the India that emerges in by 2040 will be like no other country the world has ever seen and a potential benchmark for free, open and equitable development and wealth creation for other to follow.

India’s Journey to 2040

What will India look like in 2040? Barring a catastrophic event on a near global scale, a number of factors in India’s development story appear to be fixed: India’s population will continue to growth and continue to be the world’s largest. India’s demographics appear to be equally fixed. Over the next two decades, the country will have the world’s largest working age population – people –and as a result, its dependency ratio will continue to drop (reflecting a continuing trend in the size of the workforce relative to the number of dependents). And India’s landmass and its “If it succeeds in its development path, the India that emerges by 2040 will be like no other country the world has ever seen and a potential benchmark for free, open and equitable development and wealth creation for other to follow.” economic potential are likely to be equally fixed. These are the factors upon which India will write its economic story over the next two decades, fundamentally transforming the country as a result. However, despite these factors, the rate and shape of India’s economic development is not yet set in stone and depends on a series of choices by its leaders and its people, as highlighted in a previous Sign of the Times. If India is successful in harnessing its potential, its journey promises to take it to middle income levels by or around 2040. As India’s economy continues to expand to that of a middle-income country and its society continues to evolve accordingly, it will face a shifting set of challenges and how well it meets these can be measured in terms of its wealth, education, capital formation, quality of infrastructure and global economic influence. These five metrics serve to illustrate the magnitude of change that India will potentially undergo over the next 20-25 years. They will also provide an indication over time of whether India achieves balanced development and determine what type country India will be in 2040. The nature of that balance is as follows:

At one end of the spectrum, India would become a scaled industrial-era economic giant. China is that kind of giant and is the benchmark of how to rapidly execute using scale as the objective. The speed with which China achieved this provided for a rise from a basic agricultural, communist economy to a rising industrial power. At the other end of the spectrum is the opportunity to create an entirely new model, more fit for the next phase of post-industrial knowledge based smart economy, and one that China itself is currently struggling with. India today, by choice or necessity, is clearly struggling to achieve the former aspect of each metric. Its development challenge going forward therefore is a complex and sophisticated one: since it cannot be an mass industrial power to compete with China, can it be a mass knowledge and service based one? If it can, it will be an exemplar of the broader global transition from the industrial age to the information age. If not, it will be doomed to be in the shadow of the giant across the Himalayas.

1. Wealth: Nominal GDP

India’s Challenge. India’s rapid economic development is setting it on a course to middle income country status over the next 20-something years. On an absolute basis, this means that India is charting a course to become the world’s third largest economy in nominal terms over the course of the next decade. However, this will require sustained high rates of GDP growth beyond the initial push currently underway with balanced economic development en route. More important to India as a nation than absolute GDP though is perhaps the growth in GDP/capita, which will determine the wealth and well-being of its 1.5bn citizens in 2040.

The Path Ahead. On an absolute basis, India is set to quickly overtake the European G7 economies and Japan too around 2030. On a relative per capita basis, Indian GDP will quickly catch up to the current levels of other populous countries undergoing rapid development like Vietnam by as early as 2020, despite housing 1/6 of the world’s population and then continue to expand more gradually to reach middle income levels.

The Destination in 2040. By 2040, Indian GDP will have tripled from its current level and the country will be the world’s third largest economy by a sizeable margin, comparable in size to China today, and securely ensconced as a middle-income country in terms of GDP/Capita. The transformative impact on India of this development will be substantial – with GDP/Capita being closely linked with other indicators that measure the social, economic, and environmental well-being of the country and its people.

2. Education: Higher Education College Degrees

India’s Challenge. India’s education system today churns out over 7m university graduates per year, leading the world in absolute terms but lagging far behind developed countries relatively given India’s population. India has been expanding university enrolment by 5% annually since 2010 and its tertiary education sector will need to continue to scale rapidly if it is to appropriately educate its youth and create a labour force with longer term relevance in the information age.

The Path Ahead. India’s college enrolment rates today are comparable to that of other less developed countries facing demographic challenges in the form of growing young populations such as Mexico. If India were to successfully address the shortages in infrastructure and teaching resources the country currently faces, it would reach graduation rates comparable to those of Mediterranean countries such as Greece or Portugal, both EU members, by the end of the next decade, and continue to expand further thereafter.

India in 2040. . If India can successfully expand access to tertiary education in a sustained fashion, university graduation rates in 2040 could match those of France today, one of the world’s leading industrialised economies. This would imply a more than doubling of the university graduates among 25 to 34-year olds in India, surpassing the 100m mark. Executing and funding such an expansion of higher education in India will of course be a challenge: at 3% of GDP or c.$63bn, India’s central government’s annual education spending per student is only about US$48, compared with US$940 per student in China and an OECD average of US$9,000.

3. Quality of Infrastructure: Smart Infrastructure

India’s Challenge. With over 200m people moving from rural to urban areas by 2040 India will need to both upgrade existing cities as well as build entirely new urban environments to adequately house and enable the livelihoods and security of its citizens. Importantly, India’s existing cities will need to be redesigned for high density living with mass-transit solutions, a smaller environmental footprint and digital connectivity to ensure that cities remain important drivers of sustainable economic growth

The Path Ahead. India’s urbanisation rate is currently at the level of African countries like Zimbabwe or Mozambique, but growing by 10m people annually. Given the sheer size of the population and its ongoing growth, even with these significant inflows India’s urbanisation rate will only creep up slowly through 2040, when it will reach the levels achieved by China c.2005. The growth and adoption of digital technology on the other hand has the potential to grow much more rapidly, with the use of tech enabled mobility services growing fivefold over the same period, enabling the more efficient use of urban transportation infrastructure.

India in 2040. By 2040, well over half of India’s population will still be rural, but the fate of its 650m urban residents will depend on India’s ability to deploy smart infrastructure solutions. If India goes for low cost ‘basic’ infrastructure to quickly absorb rising urban populations, the transportation, slum-ification and environmental challenges facing its metro areas today are due to grow explosively. The solution for India needs to leverage technology to combine high density cities with technology to enable sustainability and efficiency

4. Global Economic Influence: Share of World Trade

India’s Challenge.With India’s current share of global trade at just under 2%, the country will clearly need to strengthen its trade links with the rest of the world, both in terms of imports driving development and exports driving wealth creation. India reaching middle income status will require international trade to play a much larger and integrated role in India’s economy than it does today.

The Path Ahead. Having expanded 16.3% during the past year, nearly twice the rate of the economy as a whole, India’s trade will continue to expand faster than GDP: assuming that India’s trade to GDP ratio increases from currently just under 40% to c.50% over time (still remaining below the current global average of 55%), Indian trade, whose total trade today is on par with Singapore’s on an absolute level, will rapidly expand to mimic the importance of that of some of the world’s key trading nations, surpassing Korea in short order and then Japan over the medium term.

India in 2040. India by 2040 has the potential to be a global trading powerhouse, which at 6% share of global trade would rival Germany’s position as a leading global trader, currently second only to China. The share of global trade however say little about the nature of that trade and the trade balance India will develop over time. These factors will be determined by key government policies shaping the nature of India’s industrial development and investment over the next 20-25 years.

5. Share of Global Capital: Inbound and Outbound Investment.

India’s Challenge.Despite India topping the global FDI rankings in 2015. its total stock of FDI is only about the same as Italy’s, a country whose economy is only 75% the size of India’s. The picture is even starker in terms of outbound FDI: India’s outbound investment flows today are similar to Poland’s, a country whose economy is less than a quarter the size of India’s today. India will clearly need to significantly scale inbound and bound investments for both global influence and development resources.

The Path Ahead.If India maintains current inflow rates it h can accumulate transformational levels of foreign investment, surpassing Russia by 2020 and Germany by 2030. Further, if Indian outbound FDI relative to GDP can gradually increase to reach average OECD levels over the next 20-25 years, India will quickly overtake smaller active overseas investors such as Taiwan to eventually surpass G7 economies like France.

India in 2040. India in 2040 has the potential to be an investing powerhouse, both as destination for international capital and as a source of it, reaching the absolute level of foreign capital stock that China enjoys today. In terms of outbound FDI, India in 2040 could match Japan in terms of annual flows, providing it with significant global economic and political influence as a result.

India’s Trajectory - What it Means

Analysis. The analysis of India’s potential trajectory implies a number of key macro-developments and trends:

  • 3x in economic output - Total growth of 3x in economic output translates into the 3rd largest economy in the world by 2040
  • 22% increase in higher education - Expanding higher education enrolment rates by 22% higher education creates 112m college graduates between now and 2040, the largest number by country in the world by a factor of 1.3x
  • US$1,500bn investment in infrastructure - US$1,500bn investment in infrastructure creates a further ten cities the size of Mumbai by 2040, each with populations of 23m
  • US$1,332tn of FDI and FII - US$1,332tn of FDI and FII attraction into India extrapolated over 23 years makes for India’s share of global inbound FDI stock to double by 2040
  • US$115bn increase in FDI outflows - Increasing FDI outflows to US$115bn by 2040 would make India the 4th largest overseas foreign investor globally
  • 5.8% share of global trade - Growing its share of global trade from currently 2.3% to 5.8% by 2040 would make India the world’s second largest trading nation, behind China

Insights. The metrics and analysis above put into sharp focus the scale of the transformation India is facing and the high rates of prolonged change that it will need to manage, leading to the following insights on India’s trajectory:

  • Growth Model Choice Upfront. Sustained and high rate macro-economic growth is critical for India to achieve any of the projected forecasts laid out above, implying the need for India to get the growth model right from the outset and to continue to optimise it further as it progresses
  • Time Running Out. The absolute level of improvements that India will need to achieve by 2040, across a range of metrics, require a substantial lead time to achieve, implying significant urgency to initiate and drive change

  • Not China If India follows China’s lead in terms of the speed and scale of building out standard infrastructure it will build some great show-pieces, many ghost towns and empty highways that will sit idle for a decade or more before they are efficiently utilised, and a significant stock of low quality infrastructure, particularly in housing, that will degrade rapidly and need to be replaced within a few decades.
  • Non-Exports Dependency. Export driven growth is a tried and tested development path for newly industrialised and developing nations, although India has not learned how to navigate this path well yet, other than for IT services and business outsourcing
  • Mass Trader-Entrepreneurial Capitalism India’s model of capitalism will likely need to be a “mass trader” model, where high profile large corporations are evenly balanced by the volume of small entrepreneurs, providing for a reasonably equitably spread mass rise in prosperity
  • Foreign Capital Partnership Key India’s growth trajectory will require foreign capital inflows to sustain it for at least 15 years before it is potentially self-sustaining, making the country’s FDI strategy critical to starting and building growth.
  • Imperative for First Rate Successive Political Leadership India’s transformative development will require its leadership quickly implementing a next wave of economic, political and financial reforms that dwarf the efforts of India’s leaders during the first five years of BJP rule (see inset above). India’s legal system, financial and regulatory institutions and bureaucracy will need to provide the continuity. But there is no escaping the need for high quality political leaders to emerge from the 1.3-1.6 billion of India.

The trajectory of the transformation that India is undergoing is set to reshape its cities, its workforce and its society, reshaping what is today a developing country into a scaled giant that is both an economic superpower in terms of absolute geo-economic clout and a middle-income nation comparable to advanced economies today in terms of relative development. The benchmarking analysis below highlights the scope of the transformation India will undergo on the on road to 2040 in terms of comparable countries.

Conclusion: India’s Trajectory - Foresights

The opportunity and the daunting challenge for India is that given its size and unprecedented scale, existing models of development will likely prove inadequate for India’s needs. If India were to follow China’s model, it would create another scaled industrial-era economic giant in the mould of its predecessor and with its own issues: this would imply an India that scaled but with highly uneven wealth distribution, an India that is mass-educated but not with a workforce that is suited to meet the challenges of a post-industrial era, an India that has scaled infrastructure rapidly, but finding that “At one end of the spectrum, India would become a scaled industrial-era economic giant, like China, and at the other end is the opportunity to create an entirely new model, more fit for the next phase of post-industrial knowledge based smart economy” it already needs to replace much of what it’d built already, and an India that has scale in global trade, although focused on volume and bulk over value-add. Even if India were inclined to follow the model that transformed China over the past 30 years, the state-driven economy and outcomes are better suited to authoritarian decision-making processes than to a diverse democracy like India’s. The country’s unique position and growth therefore suggest that it will need to develop a different model. With the benefit of foresight (!), the key features that define the model for India in the future include:

  • Open Democracy. India has the advantage of being a peaceful and pluralistic democracy, providing an outlet for protest and a correction mechanism for government actions, both of which create runway in terms of time for the country to manage the rise of prosperity
  • Open Education. India cannot physically open enough schools and universities to provide adequate educate education for its 1.5 billion people by 2040 and so it will necessarily have to adopt technology solutions alongside a radical approach to entrepreneurial entry into a traditionally this protected sector, while ensuring continuing affordability for the country’s masses.
  • Open Information Edge. China will not be standing still during this time. Indeed, it will be working hard to make the transition from an industrial society to an information and services one and with nine of the top 20 internet companies by value today being Chinese it has already created scale, if not necessarily sophistication. Whether China can create this sophistication likely comes down to whether the government has the confidence to reverse its policies and open China’s information and communications up freely to its people. While India will surely face competition from China along the way, its path as an open society with free information flows will be quite different from China’s
  • Urban Density, ‘Blade Runner’-like. India’s density of population coupled with the existence of property rights and citizens keen to enforce them lends itself to the country modelling its major cities on templates like Tokyo rather than Beijing - density and complexity rather than structural show-pieces - hence its choice of Japan as a strategic ally makes sense on many fronts.
  • India Wide Open. While export driven growth is well trodden model (as outlined above), trade is becoming increasingly complicated due to protectionism and so the model may not be available in the way it was during the industrial growth phases of Japan, the Asian Tigers and most recently China. India will need to be wide open to talent, intellectual property, investment and all manner of foreign enterprise to co-opt them into building India.
  • Hyper-Scale Mass Consumerism. India is set to have 1.6bn people by 2050, the biggest mass consumer population in the world. It’s domestic consumption driven economy could reach self-sustaining levels shortly after 2030, at which point in time its dependence on foreign capital should decline, if not disappear. The value of the India consumer at that point in time will attract more and more capital, both foreign and domestic, driving the economy to greater heights.
  • Digital Platforms for Everything Possible. India cannot open enough physical banks, malls, schools and universities to provide for its people. For example, it will need to educate 1.X billion people by 2030. India will necessarily have to adopt technology solutions alongside a radical approach to entrepreneurial entry into every traditionally protected sector, while ensuring continuing affordability for the country’s masses.
  • America-India-China Axis. America is leading the global transformation race to the information age, with five of the ten largest companies in the world by market cap being US technology companies. At the same time, the country is facing a growing populist resistance to this change, seeking to bring back manufacturing jobs and reverse the globalisation that has put America on top today. As America’s biggest geo-political and geo-economic competitor will be China, US policy towards India will likely sway back and forth between supporting India as a counterweight to competing fiercely with it to prevent its further rise.

A growth model that recognised these factors and harnesses India’s advantages would lead to a very different middle-income country to the one China is emerging as. This India of 2040 would be service and knowledge oriented, relatively highly educated, productive and wealth generating, while enjoying a level of prosperity and material well- being “India delivering on both counts will deliver it tremendous soft-power benefits, making it an attractive partner for like-minded countries and a role-model for countries further behind and in need to develop their own development path.” previously not witnessed in any country with population size. It would be a leader in key emerging technologies that are relevant internationally such as data, finance and healthcare, which it would have deployed at scale, as well as a global engine of the mass-knowledge economy for the world, exporting services and intellectual property to the rest of the world. More importantly, achieving this transformation while adhering to the principles of democracy and free speech will ensure that this future India remains an open and free society that allows the free flow of goods, services, people and information in a manner that creates ongoing and long-term sustainable growth.

India’s status as a democracy will have a significant impact on the rest of the world when it emerges as the world’s largest middle-income economy. China’s unprecedented to date economic rise has led many to question whether democracy and freedom were compatible with scaled and sustained economic growth, just as China’s statist capitalist model has led others to question the continued relevance of free markets and free trade. India delivering on both counts will deliver it tremendous soft-power benefits, making it an attractive partner for like-minded countries and a role-model for countries further behind and in need to develop their own development path. Demonstrating a willingness to open its economy to the rest of the world through trade and investment, particularly at a time when the two leading economic superpowers - the United States and China - appear to be headed towards protectionism and at least in America’s case, a withdrawal from the multilateral economic and trade order, would send a powerful message to the rest of the world, and leave India well positioned to chart and execute a course to increasing global influence and greater leadership roles. The opportunity and the challenge would daunt almost any of today’s world leaders and will demand something extraordinary from India’s current and future leaders.


1.    See the May 2017 Sign of the Times: 12 Certainties Transforming India through 2025

2.    OECD, India Union Budget

3.     “Blade Runner” is a 1982 science fiction film with acclaimed set design, set in a future Los Angeles with a highly built-up and dense urban environment 

4.    See the May 2013 Sign of the Times: India Wide Open

5.    See appendix for definitions and sources