NEW DELHI: Prime Minister Narendra Modi while addressing a crowd of who’s who of the corporate, bureaucratic and political world in New Delhi made a promise that in his third term as Prime Minister, India will be the third-largest economy.
For India (with a current GDP size of $3.38 trillion) to become the third-largest economy, it needs to go past Germany ($4 trillion) and Japan ($4.2 trillion). While India’s nominal GDP in dollar terms has been growing at an average 6.3% over the past 10 years, Germany is growing at 1.43% while Japan’s GDP has declined at 3.8% over the past decade.
“Keep in mind the two economies we need to surpass are in a shrinking phase with an ageing population and weakening demand,” says Debopam Chaudhary, chief economist, Piramal Enterprises.
Not a mean feat
Nonetheless, India still has some catching up to do. “India should surpass both Japan & Germany in 2027 at the current rate of growth,” says a report by Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
According to Ghosh, the path taken by India since 2014 reveals that India is likely to get the tag of the 3rd largest economy in 2027 (or FY28) based on actual GDP data as of March 2023. Not a mean feat indeed, given that India was placed at 10th rank in 2014. Ghosh also points out that India could achieve the feat two years earlier than their previous forecast of 2029.
Gaura Sengupta, India economist, IDFC First Bank, also points out that in its course to becoming the 3rd largest economy in the world, India will also reverse the trend of its declining share in GDP in Emerging and Developing Asia.
“Based on IMF projections, India’s share in Emerging and developing Asia GDP will rise to 14.2% by 2027 from 13.4% in 2022,” she says. According to her, India’s share has been declining since 2007, where India’s share had reduced from 20% to a low of 12.8% in 2020.
Does size matter?
India becoming the third-largest economy is a big milestone for the country, but there’s more to it than meets the eye. Currently, India is the 5th largest economy and yet it is placed at 146th place in per capita GDP. China is placed 71st, Japan 35th, Germany 22nd and the US at 8th place. The large size of the economy does not guarantee prosperity to a larger section of the population.
As per an IMF estimate, India’s per capita GDP by 2027 will be around $3,500, and it will still be behind 130-odd countries on that count. Bangladesh, a much smaller economy, would still be ahead of India with $3,748 in per capita GDP. Not a pretty picture, and not much to boast about.
As per UNDP’s Multidimensional Poverty Index, 231 million people were still facing multidimensional poverty in 2021. With over 20% of people living in poverty being Indian, there’s a long way to go before we break into celebrations.
Of course, healthy GDP growth is synonymous with an increase in the general level of prosperity. The UNDP Multidimensional Poverty Index also showed that between 2005-06 and 2091-21, India managed to move 415 million people out of poverty. During this period, India’s GDP in dollar terms has grown at a compounded annual growth rate of 8.7%.
According to Debopam Chaudhury of Piramal Enterprises, there are two sides of the economic coin -- Growth and development. “The latter is a culmination of equitable income distribution, basic infrastructure, urbanisation and stable livelihoods,” he says adding that “in the path to become third largest, we will need a steady focus on the development aspect, which in turn will solidify India’s growth as a sustained phenomenon in the years to come”.
According to a report by the Economic Advisory Council of PM (EAC-PM), India needs to continue growing at 7-7.5% for the next 25 years to be able to reach $10,000 per capita income. In a way, India has no option but to ensure higher growth to be able to give its growing population a decent standard of living.