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India’s Inexorable Ascent

India is on track to become the world’s third largest economy in five years. A new report by Citi Research’s Surendra Goyal takes a closer look at what’s driving this growth.

India is advancing. Last year it accounted for 3.4% of global nominal GDP. That’s up from 1.1% in 1993.

That means India is now the world’s 5th largest economy at $3.5trillion. It will become the third largest by 2027, accounting for ~4.0% of global GDP, according to the IMF.

India’s real GDP growth has been on average approximately 80bps higher than global growth over the preceeding four decades.

This growth is based on multiple factors. These include demographics, healthy corporate balance sheets, public capex, investment in cleantech and digitization. Citi Research analysts reckon that medium-term growth of at least 6% is achievable even with more conservative assumptions.

India’s recent structural shifts include: 

- Policymaking: The introduction of an inflation targeting on the monetary side and from FRBM on the fiscal side.

- Inflation and interest rates: Inflation in India averages 6% over the last two decades vs. 9-10% in the two previous decades. And it averages 4% between 2015-19 vs. 9% in the 7 years leading up to that period. The difference between India’s inflation and the rest of the world has moderated.

-External sector:  Structural improvements in external balances helped by the resilience of software services exports


Decadal Index Performance in USD

MF AUM to GDP in India <20% but has rising sharply over the last two decades


Source: Citi Research, Bloomberg

Source: AMFI, Citi Research, Bloomberg

The report says that the upward mobility in income levels of Indian households will likely lead to a shift from a pyramid (c60% lower-income and lower-middle income households) to a diamond structure (c60% middle-income households).

Key trends include:

  • Premiumization across categories
  • Higher per-capita consumption
  • A higher quality digital ecosystem from discovery to distribution
  • New specialized categories

In financials, Citi Research analysts note bank credit penetration in India surged from 31% in 2000 to 50%+ by 2022,. That’s a 16% CAGR but still well below the average for developed markets, which is over 75%.

Private banks are gaining market share from public-sector banks. Within the sector, spending on technology has become key.

For corporates in India more broadly, cash flow remain healthy and balance-sheet indicators are supportive of acceleration in capex.

Meanwhile India’s regulatory environment for approvals of infrastructure projects has significantly improved.

That said, India’s infrastructure lags behind most of its Asian peers. Citi Research analysts expect infrastructure capex in India to grow at a 9-11% CAGR over the next few years.

FMCG Consumption Per Capita (US$) vs. GDP Per Capita (US$) Across Key Asian Markets



Number Of Households In India – Segmented By Income Levels (Mn, %)





© 2023 Citigroup Inc. No redistribution without Citigroup’s written permission.

Source: Company Reports quoting IMRB, Nielson data, World Bank, Citi Research



Source: Company Reports quoting RedSeer research and analysis


Clean energy

The energy mix in India is set for a “clean” overhaul, with renewables set to increase its shares by 3-6x over the next 3 decades. And large Indian firms have also announced forays into green hydrogen production and the associated ecosystem.

Clearly, there are multiple secular growth opportunities in India. The full note presents Citi’s best thematic picks and detailed analysis of the overall macro picture and individual sectors. For more information on this subject, please see India Equity Strategy / Economics Views - Multiple Secular Equity Opportunities in Fast Growing Economy (2 Feb 2023)


Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.




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