3rd largest economy in 3rd Modi term? Anatomy of India’s growth

The data sourced from the International Monetary Fund (IMF) show that India is indeed forecast to become the third-largest economy by 2027 — smack in the middle of what could be Modi’s third term as PM — as it is expected to overtake both Germany (currently fourth largest) and Japan (currently third largest).

The explanation for how India has been rapidly overtaking so many countries is two-fold — since overtaking other economies is a relative exercise, and one must look at the growth achieved by India as well as the other countries.

GDP, current prices ( In billions of US dollars)

India’s GDP has grown by 83% between 2014 and 2023. This is just a shade lower than the 84% increase achieved by China during this period. The US GDP increased by 54%. However, barring these three countries, all the other top 10 countries have seen their GDP stagnate or even contract.

India’s GDP has grown by 83% between 2014 and 2023. This is just a shade lower than the 84% increase achieved by China during this period. The US GDP increased by 54%. However, barring these three countries, all the other top 10 countries have seen their GDP stagnate or even contract.

Of the five countries that India overtook in the 9 years since 2014, the UK’s total GDP has grown by a total of 3%, France’s by 2%, Russia’s by 1%. Italy’s GDP has not grown at all while Brazil’s GDP has contracted by 15%.

So the reason for India leapfrogging some of these big economies is two-fold: while India’s GDP grew by 83%, other competing countries stagnated. A key reason for this stagnation was the Global Financial Crisis (GFC) of 2008-09. The GFC hit India’s economy, too, but the impact was nowhere near as disastrous as it was for the European countries.

This story is likely to continue even in the coming years. Despite India’s economy not growing as fast as it would like to (read 8%-9% per annum), even a more modest growth rate of 6% per annum will be enough for India to overtake Germany and Japan by 2027.

India’s GDP in 2027 will be around 38% more than what it is in 2023, while that of Japan and Germany will be only 15% more than their 2023 levels. This relatively faster growth will help India overtake these countries, and become the third-largest economy by 2027.

The data show two other noteworthy points. One, notwithstanding the relative success, India’s growth momentum has slowed down considerably between 2014 and 2023 when compared with the 2004-2014 period (when GDP grew by a total of 183%).

Two, moving from rank 10 to rank 5 was relatively easier because the GDPs were within $1 trillion of each other. The gap between the third rank and the first two is far greater. In 2027, India’s GDP will be one-fifth of China’s (short by $20 trillion) and one-sixth of the US (short by $26 trillion).

Lastly, one should not forget that these are aggregate numbers for the whole country. Actual prosperity is better captured by per capita GDP numbers. Here, the gap is way too much. At $2,600 per annum, India’s per capita GDP is not only the lowest among the top 10 countries but considerably lower than that of the countries it has overtaken, such as $47,000 in the UK or $10,000 in Brazil or $37,000 in Italy.