UPSC Issue at a Glance | From largest economies to understanding GDP: 4 Key Questions You Must Know for Prelims and Mains

What is the issue?

In the recently released IMF World Economic Outlook April 2025, the global growth forecast has been marked downwards by 0.5 percentage points to 2.8 per cent for 2025 and by 0.3 percentage points to 3 per cent for 2026 compared to this year’s January edition.

Presently positioned as the fourth-largest economy globally, on par with Japan, the IMF forecasts India to be the fastest-growing major economy over the next two years, maintaining a significant advantage over both global and regional competitors despite the adjustment in growth projections. In this context, knowing about the World GDP Ranking 2025 and understanding the concept of Gross Domestic Product (GDP) becomes essential.

(Relevance: UPSC Syllabus General Studies-II, III: Economic Development,  Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment, Inclusive growth and issues arising from it, Government policies and interventions.)

Question 1: What does the World GDP Ranking 2025 say about the largest global economies?

The world economy appears to have stabilised, showing steady growth above recession levels, yet remaining below expectations amid escalating trade-war tensions fuelled by US-imposed tariffs and global uncertainty. In the recently released International Monetary Fund (IMF) World Economic Outlook April 2025, the global growth forecast has been marked downwards by 0.5 percentage points to 2.8 per cent for 2025 and by 0.3 percentage points to 3 per cent for 2026 compared to this year’s January edition.

The report indicates that economic growth in the United States, the world’s largest economy, is projected to slow to 1.8 per cent, a pace that is 0.9 percentage points lower than the January projection, on account of greater policy uncertainty, trade tensions, and softer demand momentum, whereas growth in the euro area at 0.8 per cent is expected to slow by 0.2 percentage points.

In emerging markets and developing economies, growth is expected to slow down to 3.7 per cent in 2025 and 3.9 per cent in 2026, with significant downgrades for countries affected most by recent trade measures such as China.

According to the IMF’s World Economic Outlook, the top ten largest economies in the world, according to the current GDP (current prices), as of April 2025, are:

Source: IMF’s World Economic Outlook, April 2025 (Note: While the majority of data has been accessed from the Forbes listicle, the GDP per capita (Current Prices) has been sourced from the IMF, as of April 28. 2025.)

The IMF in its latest economic outlook has also slashed growth projections for India. “For India, the growth outlook is relatively more stable at 6.2 per percent in 2025, supported by private consumption, particularly in rural areas, but this rate is 0.3 percentage points lower than that in the January 2025 WEO Update on account of higher levels of trade tensions and global uncertainty,” the report stated.

Question 2: What is GDP, and why is it considered a key measure of economic growth?

A key measure of economic growth is the Gross Domestic Product (GDP). It provides an economic snapshot of a country, estimating the size of its economy and growth rate. It is also an easy parameter for comparing the growth of a country with that of other countries in the world.  

The GDP is the sum of the market value of all goods and services produced within the geographical boundaries of India in a particular period (generally, a year). It is slightly different from the other commonly used statistic for national income — the GNP. The Gross National Product (GNP) measures the monetary value of all goods and services by the people and companies of a country regardless of where this value was created.

For example, if Apple manufactures its mobile phone worth $1 million within India, then this $1 million will be counted in India’s GDP and US’ GNP. On the other hand, if the US office of Infosys created software worth $1 million, then it will be counted in US’ GDP and India’s GNP. It is the domestic boundary that distinguishes the GDP.

Furthermore, there are two main measures of GDP: Nominal GDP and Real GDP. 

Nominal GDP: It refers to the value of goods and services evaluated at current market prices without factoring in inflation or deflation.

Real GDP: An inflation-adjusted measure that reflects both the value and quantity of goods and services produced by an economy in a given year. 

Question 3: What are the different approaches used to measure GDP?

There are various ways of measuring the GDP of a country. Majorly three approaches are used to accurately measure GDP: Expenditure, Income, and Product.

1. Expenditure approach: The expenditure approach is a sum of four key components – personal consumption expenditure (C), investment expenditure (I), government expenditure (G), and net exports (X-M) by the rest of the world (ROW) sector.

2. Income approach: The income approach is simply calculated as income earned from all sources and includes wages and salaries, proprietors’ income (earnings from self-employment and unincorporated businesses), rental income, corporate profits, and net interest earned (interest earned minus interest paid). Additionally, the concept of GDP also includes net indirect taxes, statistical discrepancy, depreciation, and net payments made to the ROW.

3. Product approach: Also known as the output method or value-added method, the product approach adds up the market value of all goods and services produced, excluding the goods used in the intermediate stages of production.

After knowing the various ways of measuring the GDP, let’s understand how GDP is estimated in India.

GDP calculation in India

India’s GDP is estimated by the Central Statistical Office (CSO) using two methods. One is based on economic activity (at factor cost, this does not include taxes), and the second is on expenditure (at market prices, this includes taxes).

Question 4: Is GDP an accurate measure of economic growth?

GDP is considered the “world’s most powerful statistical indicator of national development and progress”. However, often it has been criticised as a measure of economic growth because of these limitations:

• It excludes non-market transactions.

• It does not account for the standard of living (Per capita income is a better measure of that).

• It does not account for externalities. 

• It does not account for income inequalities or the distribution of income.

Despite these limitations, GDP growth is an important metric. As Udit Misra of The Indian Express explains, “The GDP is a simple measure, and berating it by judging it based on social or moral norms would be completely missing the point of using GDP. For instance, GDP can go up with both prostitution as well as coal mining. That it does so is not its fault. The question of whether an economy should allow either prostitution or mining or both or neither is completely separate from what happens to GDP when either of these activities is undertaken openly.

It is true that solely focussing on GDP can lead to policies that are blind to people’s broader wellbeing. For instance, completely private provisioning of basic amenities such as health and education may result in GDP going up but may result in bringing down people’s welfare as the poor and marginalised find it hard to access these services. Similarly, policies that raise industrial output may or may not raise industrial employment adequately enough.

But it is also true that it’s easier to berate GDP than to find a worthy replacement. Instead of pulling down GDP, it is better to look at a broader set of variables to get a more nuanced understanding of people’s wellbeing.”

Post Read Questions

Prelims

(1) With reference to the gross domestic product (GDP), consider the following statements:

1. It is the market value of all the final goods and services produced within a country in a specific time period.

2. Real GDP refers to the value of goods and services evaluated at current market prices without factoring in inflation.

3. Nominal GDP refers to the value of goods and services evaluated after adjusting inflation or deflation.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

(2) With reference to the Gross Domestic Product (GDP), consider the following statements:

1. Nominal GDP is nothing but the total market value of all the goods and services produced in India in a financial year.

2. Real GDP is derived by removing the effect of inflation from the Nominal GDP.

Which of the statement(s) given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Mains

“Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial Policy capable of increasing the industrial growth rate? (UPSC CSE 2017)

(Sources: Top 10 largest economies in the world (2025), IMF cuts global growth outlook, Explained: What is GDP and why does it matter?, Why is GDP considered a key measure of economic growth?,  India’s GDP growth projected to fall short of RBI’s forecast, ExplainSpeaking: In defence of GDP as a measure of economic growth, Three approaches to measuring GDP and why they matter)

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