'India to replace U.S. as 2nd largest economy by 2050'

India is poised to overtake the USA and emerge as the World’s second largest economy on purchasing power parity basis by 2050 and has the potential to supersede China to the top spot, says a report published by PwC.

China is expected to overtake the U.S. as the world’s largest economy sometimes before 2020, according to the report.

“India, helped by its strong demographic dividend, is poised to overtake the U.S. to emerge as the second largest economy in purchasing power parity terms by 2050,” says Jairaj Purandare, PwC India Regional Managing Partner and Leader (Markets and Industries) in the report, ‘The World in 2050’

Economic size in terms of purchasing power parity measures the GDP of a nation based on the purchasing power of a local currency.

The report says India, which was at the fourth position in terms of purchasing power parity in 2009, will move to the second rank by 2050, after China. The U.S., will slip to the third spot by that period.

It also notes that India’s trend growth is expected to overtake China at some point due to the country having a significantly younger and faster growing working age population than China.

India is expected to achieve the most significant increases in share of the world GDP at Market Exchange Rates (MERs) by 2050. In 2009, India’s share of world GDP at MERs was just 2 per cent. By 2050, this share could grow to around 13 per cent.

India has the potential to be the fastest growing large economy in the world over the period to 2050, with a GDP at the end of this period to be close to 83 per cent of that of the US at Market Exchange Rates, or 14 per cent larger than the US in terms of purchasing power parities.

“The global financial crisis has further accelerated the shift in economic power to the emerging economies.

Over the coming decade, the Indian economy is likely to become less dependent on outsourcing and more focused on manufacturing exports, building on its strong engineering skills and the rising levels of education of its population,” Purandare adds.

Lower labour force growth due to one child policy means China’s growth will slow down progressively while India will remain fairly strong.

However, according to the report, despite slowdown in population growth, China is expected to overtake the U.S. as the world’s largest economy sometime before 2020.

However, India will be able to fully realise its great potential only if it continues to pursue the growth-friendly economic policies of the last two decades.