Clipped from: https://www.thehindubusinessline.com/opinion/editorial/yen-for-growth/article69633331.ece
Euphoria over GDP size should be tempered with realism
India’s GDP growth is commendable but inequality needs to be tackled | Photo Credit: NatanaelGinting
The IMF in its latest World Economic Outlook has projected that India’s nominal GDP will be $4.18 trillion in 2025, overtaking Japan as the fourth largest economy in the world. This is a milestone indeed, and the cheerleaders are out. But the euphoria needs to be tempered with some realism.
Just six years ago in 2019, Japan’s nominal GDP at $5.11 trillion was 82 per cent higher than India’s $2.83 trillion. India suffered a much larger contraction than Japan (5.7 per cent versus 1.2 per cent) in the pandemic year of 2020. But since 2020, a scorching annualised growth rate of 9.4 per cent in India’s nominal GDP has helped it race ahead of Japan, which has suffered a 3.7 per cent annual contraction in this period. India’s climb in the global GDP rankings is thus a function of its economic resilience post-Covid. It must also be acknowledged that India managed this recovery without excessive fiscal stimulus. This has left its sovereign debt parameters in better shape than the advanced economies. But then, as home to the world’s largest population with favourable demographic tailwinds, it is hardly a surprise that the Indian economy is growing in absolute size, relative to the greying advanced economies. Now, India should aspire to level with nations such as Japan on growth with equity and superior human development indicators.
Though India is marginally ahead of Japan on the size of its economy, its GDP per capita (current dollars) will still average just $2,878 in 2025 compared to $33,955 for Japan, $89,105 for the US and $55,911 for Germany. Even populous China will manage $13,687. India’s per capita income appears better on PPP (Purchasing Power Parity) at $12,131 but still lags China ($28,978) and Japan ($54,677) by wide margins. India’s high growth rates in the last decade have lifted millions out of poverty. But income inequality remains pervasive. The recently published Household Consumption Expenditure Survey (HCES) showed that in 2024, average per capita household spending in rural India were just ₹4,122 per month, 41 per cent less than urban households. In urban India, a creamy layer (top 5 per cent) household managed per capita spending of over ₹20,300 a month, while a bottom 5 per cent household eked out a living with ₹2,376. Yawning regional disparities are evident with households in Bihar, Jharkhand and Chhattisgarh getting by spending less than half of those in the Southern States.
We are not in the big league on human development indicators. UNDP places India at the 130th rank among 193 nations in its Human Development Index (HDI). Poor rankings on parameters such as years of schooling and life expectancy are a sure sign that excessive reliance on the private sector to deliver universal health and education simply isn’t working. It is good to see India surpass yet another developed country, but ultimately, GDP milestones should make a difference to the aam aadmi.
Published on May 29, 2025
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