India is likely to become world’s third largest economy by 2028 and overtake Japan in nominal gross domestic product (GDP), projects a recent Bank of America Merrill Lynch report co-authored by Indranil Sen Gupta and Aastha Gudwani. The country, according to BofA-ML, is also well on track to cross France and the United Kingdom (UK) to emerge as the world's fifth largest economy after Germany by 2019.

The report assumes the Indian economy will grow at 10% (in nominal US GDP) in the next 10 years, well ahead of Japan's 1.6%, and will be driven by the services sector. At the same time, various structural factors will likely weigh on growth in China, Brazil and Russia, BofA-ML says.

The report sees three strong growth drivers over the next 10 years that will help India achieve this. First, falling dependency ratios should raise saving and investment rates. Second, financial maturity, due to financial liberalisation and inclusion, should continue to lower lending rates structurally. Finally, increasing incomes and affordability will likely underpin the emergence of mass markets, supporting an expected 7% real GDP growth.

Growth, according to BofA-ML will be driven by services, as India cannot replicate the export-led strategy of Asian tigers that was possible in a different world environment during the Cold War.