ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections

“We don’t do deals in a hurry and we don’t do deals with deadlines or with a gun on our head,” he had said, and this was the part that caught everyone’s attention.

However, what was equally noteworthy was the reason he gave for India’s approach: “We’d like to really look at the long term. We recognise that 20-25 years from now we’ll be a $30 trillion economy. And accordingly we’ll negotiate based on the future. A trade deal is in the long term and we have to recognise the future and get the best deal.”

The central point here is that India’s economy is going from strength to strength and, even though at the moment the US economy is almost 8 times the size of India’s economy, in the coming 25 years that gap will get narrowed substantially. As such, there is no reason to consider India weak when in the long-term, India’s economy will become $30 trillion — roughly the same level when the US is at present.

Given that economic growth rate and the size of the economy — even the projected one — is a big enough variable determining India’s trading stance, it is worth examining how likely it is for India to become a $30 trillion economy in the next “20-25 years”.

Size of the economy

Some basics first. The size of an economy refers to the annual gross domestic product or GDP. The GDP is nothing but the total market value of all goods and services produced within a country. The size of an economy gives a sense of the overall heft of an economy in global affairs; it is a way to keep score. That’s because if an economy produces more (or spends more, depending on how you calculate the GDP), it informs about the relative prosperity and economic vitality of that country.

For instance, the US GDP at the end of 2024 December (because the data is logged according to Calendar year there), was around $29.2 trillion. In the 2024 financial year (that is, in the 12 months between April 2023 and March 2024), India’s GDP was $3.9 trillion. The GDP of California, a US state, was $4.1 trillion in 2024.

The following analogy is imperfect but useful: The GDP is like the overall runs scored by a team in the whole year. It would stand to reason that a team that scores substantially more than others through the year would end up winning more matches and could be judged a stronger team.

How is GDP calculated?

In a global context, a country’s GDP is stated in US dollar terms. That way all economies can be compared easily. That means calculating the GDP in dollar terms requires taking India’s GDP in rupee terms — the way it is actually observed on the ground — and then dividing it with the dollar-rupee exchange rate to arrive at the value in US dollar terms. It is also noteworthy that the GDP in question in all such discussions is the nominal GDP — not the real GDP (the one in which we take away the effect of inflation).

As such, any projection of GDP would require two things: The projection of India’s nominal GDP in rupee terms as well as the projection of rupee-dollar exchange rate.

Both matter because the same nominal GDP of Rs 330 trillion in 2024 could be converted to make India a $5 trillion economy if the exchange rate in 2024 was the same as in 2014. But since the exchange rate had slipped from around 65 rupees to a dollar in 2014 to around 84 rupees a dollar in 2024, India’s GDP in dollar terms was still $3.9 trillion.

How valid are Goyal’s projections?

Quite valid. Here’s how.

Let’s assume the projection of $30 trillion is for 25 years instead of 20 years — which is the easier goal to achieve.

Since we are projecting 25 years into the future, it makes sense to look back at how India’s economy has grown in the past 25 years. Data reveals that India’s nominal GDP has registered a CAGR (compounded annual growth rate) of 11.9% since the financial year 2000. Further, the Indian rupee has depreciated against the dollar at a CAGR of 2.7% since 2000.

So, if one presumes that India’s growth will be exactly the same and the rupee will depreciate exactly in the same manner over the coming 25 years, then India’s GDP will cross $30 trillion in 2048. That’s exactly 27 years from now — smack in the middle of the range that Goyal provided.

CHART.

The blue section of the TABLE alongside provides the calculation.

TABLE

Then what’s the problem?

It is fine to use the growth trajectory from the past 25 years. But India’s growth momentum has weakened since 2014. The data reveals that since 2014 — or the past 11 years — the CAGR of nominal GDP has been 10.3% while the CAGR of rupee’s depreciation has been 3.08%.

In other words, the economy is growing at a slightly slower rate while the rupee is depreciating at a slightly higher rate.

If, instead of the past 25 years data, one uses the past 11 years’ data (the period over which the incumbent BJP has been in power), the projection for India’s GDP goes significantly off-course. The mustard section of the TABLE shows the calculations. India’s GDP will cross $30 trillion around 2055.

Is it that a big divergence?

As far as projections go and that too so far in the future, the difference in the timelines is around 7-8 years. That may seem small enough in the context of a country that has been around for thousands of years but in hard money terms, the difference is quite stark, as brought out by the CHART above.

In 2055, India’s economy, according to the growth rate based on the past 25 years, would be a whopping 75% bigger than the size of the economy based on the growth rate over the past 11 years.

Upshot

This data analysis shows that the performance of each decade is important. Moreover, when projecting over the long term, even insignificant looking changes in growth rates can have a big difference.

While it is true that as an economy grows its growth rate moderates yet India is still too small especially in relation to the US and China — notwithstanding its ranking among the countries — to allow for the growth rate to decelerate.

If India wants the world to take its projections seriously, it has to increase its growth rate.

Does India need to grow faster? Share your views and queries at udit.misra@expressindia.com

Take care,

Udit