India’s Rise to the Fourth-Largest Economy

Context

This is a milestone to the economy of India as it has become the fourth largest economy in the world by surpassing Japan with the latest government figures putting its nominal GDP at $4.18 trillion. This leaves India as the third place after United States, China, and Germany. It is projected that there is a possibility of Germany being overtaken by 2030 with GDP of up to $7.3 trillion. This announcement highlights the fact that India is recovering very well after the pandemic and that this is in line with the vision of Viksit Bharat by 2047.

Current Economic Standing

Domestic consumption, public investment, and expansion in service sector have been driving the growth of the GDP in India. Key indicators include:

• GDP Composition: Services are a significant contributor of GDP of about 55, industry about 25 and agriculture about 18.
• Growth Trajectory: The average annual growth is between 7-8 per cent and it rises to 3.73 trillion in 2023 and 4.18 trillion in 2025.
• Global Comparison (estimates 2025):

This ranking shift highlights India’s demographic dividend, with a working-age population exceeding 65%.

Factors Driving Growth

This increase has been caused by several structural reforms and macroeconomic policies:

• Government Programmes: Production Linked Incentive (PLI) schemes of 14 industries, Atmanirbhar Bharat of self-sufficiency and infrastructure drive through National Infrastructure Pipeline (NIP) worth 111 lakh crore.
• Digital and Financial Inclusion: UPI transactions of more than 50 billion a year, Jan Dhan accounts of more than 50 crore, and a digital economy valued at one trillion in 2028.
• FDI Inflows: FY24 at an all-time high of $85 billion, and manufacturing and technology contributions make up 60 percent of that figure.
• Export performance: Merchandise exports are at $437 billion (FY24) with electronics and pharmaceutical being the main export.

Projections and Global Implications

India is projected to become the third largest economy with its GDP of $7.3 trillion by 2030 (Morgan Stanley). This is a pattern as justifiable by:

• Demographic Strength: 1.4 billion of citizens, including 900 million in labor force in 2030.
• Urbanization and Consumption: The middle class has grown to 1 billion and increased demand.
• Geopolitical Change: G20 leadership and Quad alliances make India stronger internationally.

Challenges Ahead

• Despite optimism, hurdles remain:
  • • Job Creation: 90 million non-farm jobs will be required by 2030 in the face of automation threat.
    • Inequality: Gini coefficient= 0.35; rural-urban gap continues.
    • Climate Vulnerabilities: Monsoon reliance and green energy.
    • External Risks: Geo-political tensions and rupee volatility.
• These can only be tackled through financial restraint and training expertise through programs such as Skill India.

Way Forward

The priorities of India should be inclusive growth, which should be encouraged by labour reforms, green investments (5 lakh crore a year), and R&D investments (to 2 per cent of GDP). The momentum will be maintained through improving ease of doing business (India is ranked 63rd in World Bank 2024) and the formalization of MSMEs. Trade can be increased through international relationships through BIMSTEC and IPEF. Finally, a 8-9% growth through time will achieve the 30 trillion economy by 2047 and make India a multipolar leader.

Source: The Hindu

UPSC Prelims Practice Question

Q. With reference to India’s rise as the world’s fourth-largest economy, consider the following statements:

1. India’s ranking as the fourth-largest economy is measured in terms of nominal GDP.
2. This rise reflects sustained growth driven by domestic consumption and public capital expenditure.
3. India has already surpassed the United States to become the largest economy in Purchasing Power Parity (PPP) terms.

Which of the statements given above is/are correct?

A. 1 and 2 only
B. 2 only
C. 1 and 3 only
D. 1, 2 and 3

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