The combined economic output of China and India will exceed that of the entire OECD bloc (Organization for Economic Cooperation and Development) by 2060, the group said in a report published on Friday.
China, currently the world's second biggest economy, is forecast to grow at an average pace of 6.6 percent from now till 2030, and 2.3 percent from 2030 to 2060. The projections for India, the 10th largest, are 6.7 percent and 4 percent, respectively, the OECD said.
In comparison, the 34 OECD nations are projected to grow an average of 2.3 percent per year from now till 2030 and 1.7 percent from 2030 to 2060.
"The faster growth rates of China and India imply that their combined GDP (gross domestic product) will exceed that of the major seven (G7) OECD economies by around 2025," the group said in the report. "Strikingly, the combined GDP of these two countries will be larger than that of the entire OECD area, based on today's membership, in 2060, while it currently amounts to only one-third of it."
Because of this faster economic growth, the two Asian giants will see their per capita income increase more than 7-fold, providing a big lift for the living standards of the average Chinese and Indian, the bloc added. This will be more pronounced in China because of the strong productivity growth and high capital investment compared to India, it added.
Education Key to Higher Living Standards
However, it warned that despite this fast growth among countries that are "catching up," the living standards of the average Chinese and Indian will still be low, about only "one quarter to 60 percent of the level in the leading countries in 2060."
"In particular, large differences in average education will persist in the long term. Such averages reflect education levels across the whole adult population and evolve slowly over time so these (education) gaps with advanced economies close more slowly than productivity gaps," the OECD said.
What the governments of these countries need to do is invest in education, which could be "an important policy lever for achieving a faster catch-up in living standards among developing countries," the OECD said. This will lift the number of people who can contribute productively to the economy, the group said.
"The OECD analysis identifies education reforms as among the highest priorities for structural reform in Brazil, China, India and Indonesia," the group said.
Global Growth to Slow
Besides investing in education and training, China and India could also implement other policies to try to lift their onger-term economic outlook, according to the OECD. They can speed up financial sector reforms, raise retirement ages so that people work longer, spend more on social protection including healthcare and pension, and provide greater access to private business credit.
(Read more: Megatrends: Aging World)
Reforms are also necessary in the OECD bloc of nations if they want to boost their growth, which has been hurt by the effects of the global financial crisis. Like China and India, they may also need to raise retirement ages. On top of that, they will need to slash deficits and invest in technology to increase productivity, the OECD said.
These policies, both in OECD countries and developing nations such as China and India, may help lift global GDP, which is expected to expand at around 2.9 percent per year over the next 50 years, slower than the 3.5 percent average annual pace seen over the past 16 years, from 1995 to 2011.
This slowdown is mainly due to the after-effects of the 2008 financial crisis such as high unemployment, excess industrial capacity and large fiscal deficits. Demographic changes such as aging in OECD economies will also weigh on growth.
"The global economy currently faces serious challenges and policy action is needed to restore confidence and put the economic recovery onto a sustainable growth path," the OECD said. "Altogether these reforms could boost annual global GDP growth on average by 0.3 percentage points over the next 50 years."
—By CNBC's Jean Chua.