Sunday, 23 Mar, 2025
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With global risks mounting, a calibrated approach balancing reforms and fiscal discipline will be crucial to preserving India’s economic resilience amid shifting geopolitical and financial dynamics.
India’s GDP (gross domestic product) growth slowdown to 6.5 per cent in FY25 from 9.2 per cent last year reflects both a higher base effect and shifting economic dynamics. With GDP now estimated at Rs 331 lakh crore ($4.2 trillion), the country is on track to surpass Japan’s $4 trillion economy, aided by a weaker yen and Japan’s stagnation.
However, the long-term challenge lies in breaking free from the middle-income trap. While overall economic expansion continues, per capita income growth remains sluggish, limiting broader prosperity.
To push toward high-income status, New Delhi must accelerate manufacturing growth and infrastructure spending. Yet, weak private investment and widening skill gaps could pose hurdles. Policy interventions in these areas will be crucial for sustaining momentum.
The PHD Chambers of Commerce and Industry (PHDCCI) forecasts India’s GDP growth at 6.8 per cent in FY25 and 7.7 per cent in FY26, reinforcing the nation’s economic momentum. With this trajectory, India is poised to surpass Japan and become the world's fourth-largest economy by 2026.
For sustained economic expansion and job creation, India must prioritise sectors with both domestic relevance and global momentum. Agriculture and food processing can boost exports and cut post-harvest losses, while Fintech will drive financial inclusion. Semiconductors are crucial to reducing import reliance, and renewable energy—from solar to green hydrogen—strengthens energy security. Healthcare & Insurance must scale affordability, while sustainable development demands clean-tech and ESG investment. A targeted policy push with private capital and R&D incentives will be key to unlocking these opportunities.
India, the world’s fifth-largest economy, overtook the UK in 2022 and now trails only the US, China, Japan, and Germany. With growth outpacing developed markets, the race to enter the top four is gaining momentum.
Jefferies has predicted that India’s GDP will reach $5 trillion within four years, making it the world’s third-largest economy by 2027, surpassing Japan and Germany. The report highlights the rapid rise from the ninth largest to the fifth-largest economy over the past decade, reflecting strong growth potential. On a purchasing power parity (PPP) basis, India’s GDP already stands at $13.2 trillion, ranking third globally.
New Delhi’s economic resilience is an oft-repeated narrative, but the underlying drivers merit closer scrutiny. The country has benefited from a confluence of factors: domestic consumption, a push for infrastructure, and policy measures that have shielded it from external shocks. While global heavyweights struggle with stagnation, India’s ability to sustain momentum underscores its relative strength. Yet, risks remain—rising fiscal deficits, uneven job creation, and the looming impact of tighter monetary conditions could temper this optimism.
Sustaining this growth will require the Centre to deepen structural reforms, improve labour market flexibility, and accelerate manufacturing expansion.
The economic climb since 2000 has been powered by market liberalisation, a booming services sector, and digital financial inclusion. Surpassing the UK’s GDP was a symbolic win, but sustaining momentum is the real challenge. The rupee’s rising role in trade hints at de-dollarisation ambitions, yet India’s persistent trade deficit limits its clout. Fintech dominance showcases innovation, but the job market and financial inclusion remain weak spots. A young population offers an advantage, but without rapid employment generation, the demographic dividend could become a drag.
Experts say to solidify its global standing, India must fast-track manufacturing, deepen trade ties, and get more people into the workforce. The rupee’s global role hinges on geopolitics and policy execution. The real challenge: turning a massive population into an economic powerhouse.
