Asia’s third-largest economy, which may overtake the US by 2050 with 9.7 percent of average annual growth, has the potential to supersede China to the top spot, said the report published by PwC.

According to the PwC’s ‘The World in 2050’ report, China, with 10.5 percent annual growth, is expected to overtake the US as the world’s largest economy sometimes before 2020. And the US, will slip to the third spot by 2050 as India would take the second position.

However, India’s growth trend is expected to overtake China’s at some point in coming decades as the Asia’s third-largest economy has a significantly younger and faster growing working age population than its neighbor

"India, helped by its strong demographic dividend, is poised to overtake the US to emerge as the second largest economy in purchasing power parity terms by 2050," said Jairaj Purandare, PwC India Regional Managing Partner and Leader (Markets and Industries) in the report.

“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,” said Purandare.

However, the report warned that India will only fully realize this great potential if it continues to pursue the growth-friendly economic policies of the last two decades.

“Looking ahead, particular priorities will be maintaining a prudent fiscal policy stance, further extending its openness to foreign trade and investment, significantly increased investment in transport and energy infrastructure, and improved educational standards, particularly for women and those in rural areas of India,” report said.

Consumer markets in major Indian cities will also become increasingly attractive to international companies as the size of the middle class there grows rapidly over time, the report added.

On the other hand, lower labor force growth due to one child policy may slow down China’s growth progressively while India is expected to remain fairly strong. Despite the slowdown in population growth, China is expected to overtake the US as the world’s largest economy sometime before 2020, the report forecast.

“In many ways this renewed dominance of China and India, with their much larger populations, is a return to the historical norm prior to the Industrial Revolution of the late 18th and 19th centuries that caused a shift in global economic power to Western Europe and the US – this temporary shift in power is now going into reverse,” the report said.

“This changing world order poses both challenges and opportunities for businesses in the current advanced economies. On the one hand, competition from emerging market multinationals will increase steadily over time and the latter will move up the value chain in manufacturing and some services (including financial services given the weakness of the Western banking system after the crisis),” it added.