Many of the optimists are watching India soon to be a 4th largest economy passing Germany.
According to RBI deputy governor Michael D. Patra India will match Germany’s GDP and become the fourth-largest economy by 2025-26 and by 2027, India will surpass Japan (nearly $5 trillion GDP) and and become the third-largest economy.
According to Patra, India — already the fifth-largest economy of the world ahead of the UK (about $3.2 trillion GD GDP) – is an engine of global growth with the second largest contribution to global growth in 2022. “India’s population will become the largest in the world next year and it’s youngest. It will demand the world’s best financial intermediation services,” Patra said at a recent RBI event.
India will match Germany’s GDP (just over $4 trillion as of 2021) and become the fourth largest economy by 2025-26 and by 2027, India will surpass Japan (nearly $5 trillion GDP) and become the third-largest economy, RBI deputy governor Michael Patra has said.
The deputy governor’s statement comes a few weeks after the IMF forecast that Germany and Italy will slip into recession next year. According to the IMF World Economic Outlook, the German economy is expected to shrink by 0. 3% in 2023. The multilateral institution has forecast India’s GDP to grow at 6. 9% with tight monetary conditions slowing growth to 6. 1% in FY24.
Patra said that banks will have a critical role in this transformation. “The reach and spread of the banking network have improved the mobilization of financial resources in the economy,” he said. Patra added that the number of deposit accounts per thousand populations has increased to over 1,600 from 43 in 1972.
The share of smaller loans (up to Rs. 10 crore) in total loans has increased to 60% in 2022 from 45% in 2014.
Comparison between India and Germany
Possible regions where India can excel
- From poverty to empowerment: Acceptable living standards for all
The trickle-down effect of economic liberalization has lifted millions of Indians from indigence in the past two decades. The official poverty rate declined from 45 percent of the population in 1994 to 22 percent in 2012, but this statistic defines only the most dismal situations. By our broader measure of minimum acceptable living standards—spanning nutrition, water, sanitation, energy, housing, education, and healthcare—we find that 56 percent of Indians lacked the basics in 2012.
The country will need to address these gaps to achieve its potential. The task is certainly within India’s capacity, but policy makers will have to promote an agenda emphasizing job creation, growth-oriented investment, farm-sector productivity, and innovative social programs that help the people who actually need them. The private sector has a substantial role to play both in creating and providing effective basic services.
2. Sustainable urbanization: Building India’s growth engines
By 2025, MGI estimates, India will have 69 cities with a population of more than one million each. Economic growth will center on them, and the biggest infrastructure building will take place there. The output of Indian cities will come to resemble that of cities in middle-income nations (Exhibit 2). In 2030, for example, Mumbai’s economy, a mammoth market of $245 billion in consumption, will be bigger than Malaysia’s today. The next four cities by market size will each have annual consumption of $80 billion to $175 billion by 2030.
3. Manufacturing for India, in India
Although India’s manufacturing sector has lagged behind China’s, there will be substantial opportunities to invest in value-creating businesses and to create jobs. India’s appeal to potential investors will be more than just its low-cost labor: manufacturers there are building competitive businesses to tap into the large and growing local market. Further reforms and public infrastructure investments could make it easier for all types of manufacturing businesses—foreign and Indian alike—to achieve scale and efficiency.
4. Riding the digital wave: Harnessing technology for India’s growth
Twelve powerful technologies will benefit India, helping to raise productivity, improving efficiency across major sectors of the economy, and radically altering the provision of services such as education and healthcare. These technologies could add $550 billion to $1 trillion a year of economic value in 2025, according to our analysis, potentially creating millions of well-paying, productive jobs (including positions for people with moderate levels of formal education) and helping millions of Indians to enjoy a decent standard of living.
5. Unlocking the potential of Indian women: If not now, when?
Our research suggests that women now contribute only 17 percent of India’s GDP and make up just 24 percent of the workforce, compared with 40 percent globally. In the coming decade, they will represent one of the largest potential economic forces in the country. If it matched the progress toward gender parity of the region’s fastest-improving country, we estimate that it could add $700 billion to its GDP in 2025. Movement toward closing the gender gap in education and in financial and digital inclusion has begun, but there is scope for further progress.
Public-sector efforts to address the five areas are under way. The government is attempting to improve the investment climate and accelerate job creation—India’s ranking on the World Economic Forum’s Global Competitiveness Report climbed to 55 in 2015–16, from 71 a year earlier. Officials are moving to make the government more efficient, using technology that can leapfrog traditional bottlenecks of a weak infrastructure. One billion Indian citizens, for example, are now registered under Aadhar, the world’s largest digital-identity program and a potent platform for delivering benefits directly to the poor. All in all we can say that there are ample opportunities for India to excel and being 4th largest economy soon.
