"Our baseline projections for India's potential output growth show that the economy can sustain growth rates of about 8 per cent till 2020, significantly higher than the 5.7 per cent that we projected in our original BRICs paper," Goldman Sachs said in a new economic paper released on Tuesday.
"The implications of projections are that India will overtake the G6 economies faster than envisaged in our earlier BRICs research," it added.
The report forecasts that India's GDP will surpass Italy, France and the UK by the middle of next decade (around 2015).
It will then overtake Germany, Japan and finally the US before 2050, to emerge as the second-largest economy after China.
From 2007 to 2020, India's GDP per capita is likely to quadruple, the report said. The higher growth rate would imply huge demand in the country, as Indians will also consume about five times more cars and three times more crude oil.
India's contribution to world growth would also be high and increasing, it said. "Our new projections for India's potential growth envisage an average growth of 6.9 per cent in 2006-2050.
The Goldman Sachs report said a turnaround in manufacturing productivity since 2003 has been crucial. The main cause is the increase in efficiency of private sector firms in the face of growing competition.
The gradual opening up of the economy introduced a competitive dynamic, which forced the private sector to restructure during the relative slowdown in growth and corporate profitability during 1997-2002, it added.
The underlying causes for increase in efficiency of private firms have been acceleration in international trade, financial sector growth and investments in and adoption of information and communication technology.