India's Economy to Hit $5.1 Trillion by FY29?

India's economy is poised for significant growth, potentially reaching $5.1 trillion by FY29 under a base case scenario, according to recent analysis. This optimistic projection is supported by the improving health of the banking sector and steady real GDP expansion.

The investment firm forecasts a nominal GDP growth of 8% annually in US dollar terms. This is based on an assumption of 6.5% real growth, 4% inflation, and a 2.5% annual rupee depreciation.

These projections contrast with past performance, where India's GDP stood at $4.1 trillion in FY26. The nominal CAGR of 5.4% since FY19 fell short of the 10.2% needed for the government's initial $5 trillion goal.

Factors contributing to the past shortfall included a 4.15% GDP contraction in FY21 during the COVID-19 pandemic, twin balance-sheet stress affecting banks and corporations, and a sharp 12.3% rupee depreciation against the US dollar in FY26 alone.

Conditions are now viewed as more favorable. Real GDP growth averaged 7.4% between FY22 and FY26, exceeding the 6.2% average of the preceding two decades. Bank balance sheets are currently at their healthiest in 20 years.

Furthermore, corporate balance sheets are well-positioned for capital expenditure. This is identified as a critical inflection point that could drive sustained economic growth for India.