Morgan Stanley: India to Become World’s 3rd Largest Economy by 2028

According to the American multinational global Investment banker and financial service provider, Morgan Stanley, India will overtake Japan and Germany to become the third-largest economy in the world by 2028.

The report prepared by the research wing of Morgan Stanley, titled” India’s State-Led Economic Transformation”, was released on 23 July 2025. The report also predicts that the Indian gross domestic product (GDP) will double to $10.6 trillion by 2035.

According to the International Monetary Fund (IMF) the Indian economy is expected to become the third largest economy by 2028.

Currently, the IMF ranks India as the fifth largest economy in the world after the United States of America, China, Germany and Japan. It expects India to overtake Japan in 2025 and become the fourth-largest economy.

However, according to NITI Aayog, India has already overtaken Japan to become the fourth-largest economy in the world.

Main Points of the Morgan Stanley Report 

• The Indian GDP is expected to double to $10.6 trillion by 2035 from the present $4.19  trillion.
• Three to five states will have a gross state domestic product (GSDP) of more than $1 trillion by 2035. It has identified Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh and Gujarat that are likely to have a GSDP of $1 trillion.
• The report has identified Maharashtra, Gujarat, and Telangana as the top-performing states at present.
• The states that showed the most improvement in the last five years are Uttar Pradesh, Madhya Pradesh, and Chhattisgarh. 
• India's contribution to global growth over the next decade is also expected to be around 20%.

Reason for the Indian Growth 

The Morgan Stanley report has listed the following reasons for India’s emergence in the world.

Structural Change and Infrastructure Investment 

• The continuous economic reform over the past decade has led to a structural shift in the Indian economy, characterised by increased capital expenditure, infrastructure modernisation, and policy reforms.
• The central government has increased capital expenditure from 1.6% of the GDP in 2014-15 to 3.2% of the GDP in 2024-25.

Shift in Global Supply Chain 

• India has also emerged as one of the beneficiaries of the shift in the global supply chain from China.
• The production-linked incentive (PLI) scheme launched by the government to attract investment in the manufacturing sector has yielded positive results with an increase in exports and industrial output.

Robust Capital Market 

• The Indian capital market has consistently attracted a high volume of foreign investment that has ensured access to easy and cheap capital by the Indian business groups.

Competitive Federalism 

• The report has identified competitive federalism in India as one of the key factors for future Indian economic growth.
• The states are competing amongst themselves to attract private investment by undertaking economic reforms, investment in infrastructure and policy reforms to ease the doing business.

Challenges for the Indian Economy 

According to the report, the following issues will pose a challenge to the Indian economy:

• Uncertain geopolitical situations like the situation in West Asia, -Russia-Ukraine war,
• Threat of climate change and extreme weather events,
• Job creation and unemployment,
• Growing income inequality and regional disparity amongst states,
• Challenges in attracting sustainable foreign investment, and
• Executing large-scale urbanisation without major disruptions.

Also Read: India overtakes Japan to become the 4th largest economy in the world.