Central Idea

India is set to become the world’s third-largest economy by FY28, two years earlier than projected, according to economists at SBI Research.
Prime Minister highlighted India’s remarkable economic progress during his tenure.

India’s Economic Growth Trajectory

Actual progress: India’s Gross Domestic Product (GDP) has grown by an impressive 83% between 2014 and 2023, a close second to China’s growth rate of 84% during the same period.
Financial Crisis Impact: While India’s economy was affected by the 2008-09 Global Financial Crisis its resilience was significantly better than that of European countries, contributing to its growth advantage over them.
Stagnation of Competing Countries: Many other top 10 economies have struggled to maintain significant growth rates, allowing India to overtake them. Ex. the UK’s total GDP grew by only 3%, France’s by 2%, Russia’s by 1%, while Italy’s GDP stagnated, and Brazil’s GDP even contracted by 15% during the same nine-year period.

India’s Prospective Rank: According to forecasts from the International Monetary Fund (IMF), India is expected to become the third-largest economy globally by 2027, overtaking both Germany and Japan.
India’s Growth Advantage: Even with a more moderate growth rate of 6% per annum, India’s GDP in 2027 will be approximately 38% higher than its 2023 level.
Recessing countries: Japan and Germany are projected to achieve only a 15% increase over the same period, enabling India’s ascendancy to the third rank.
Challenges of Catching up: The gap between China and the US (the top two economies) and India’s GDP remains substantial.
Digitalization and Global Sentiment: Positive aspects include increased digitalization of the economy and the opportunity to attract investments due to negative global sentiment towards China.

Aggregate vs. Per Capita Numbers: While India’s aggregate GDP growth has been impressive, it is essential to consider per capita GDP figures to understand the actual prosperity of the country’s citizens.
Low Per Capita GDP: India’s per capita GDP, at $2,600 per annum, remains the lowest among the top 10 economies and lags considerably behind the countries it has overtaken, such as the UK, Brazil, and Italy.

Pandemic Devastation: MSMEs, contributing 30% to India’s GDP and employing 110 million people, have been hit hard by the pandemic. Government surveys suggest that around 9% of these enterprises have shut down due to COVID-19.
Inflation: The decimation of MSMEs has resulted in core inflation, giving pricing power to a few large companies and burdening consumers with increased costs.
Unemployment Woes: The struggles of MSMEs are a significant reason behind India’s failure to reduce unemployment rates, leading many towards the rural job guarantee scheme for paid work.
Manufacturing-Led Economy: India’s inability to build a manufacturing-led economy remains a challenge, affecting job creation.
Factor Market Reforms: Successive governments have struggled to implement meaningful factor market reforms in land and labor laws.

Addressing the hidden crisis will require sustained efforts from the government, focused on supporting MSMEs and implementing crucial reforms.
Taking timely and decisive action is essential to propel India towards a more stable and inclusive economic future.