Sunday, 13 Oct, 2024
By: Niyati Sareen
Image Source: Freepik
IMF projects India’s GDP growth at 7% for fiscal year 2025, making it the fastest growing economy among G20 nations. It’s soaring GDP, positions India to overtake Japan and Germany by 2027, securing it’s spot as the third largest economy in the world.
By the time finance minister N. Sitharaman presents the Budget in 2025, India would be edging ahead of Japan as the fourth largest economy in the world. The International Monetary Fund (IMF) now projects India’s GDP growth at 7% for fiscal year 2025, a 0.2% boost from the previous forecast of 6.8% in April 2024. This is a figure which stands out not only because it displays the economic momentum driving India’s development story but also highlights India’s pivotal role as an engine of growth for the global economy.
Driven by a population of over 1.44 billion, India's GDP is expected to reach 4.34 trillion dollars in 2025. Domestic consumption by the world’s largest population coupled with increased public investment and capital expenditure is providing a solid grounding to India’s economic growth. According to a report by Ernst & Young (EY) in 2023, “Private Final Consumption Expenditure (PFCE) has grown at a CAGR of 11.3% (in nominal terms) over the last 10 years.” Moreover, a significant portion of the population is of working age, with the median age being around 28 years indicating a demographic dividend. India's shift towards Digital India, critical reforms such as Goods and Services Tax and introduction of schemes including Jan Dhan Yojana and Make in India along with the expansion of infrastructure have all contributed to India's successful growth journey.
India’s tax GDP ratio for 2024-25 is expected to be 11.7%, reflecting a steady increase in the government's ability to generate revenue relative to the size of the economy. An 11.4% increase in tax revenue is anticipated, reaching around 38.31 trillion rupees, which not only increases the government's resources for public spending but also enhances fiscal stability and promotes economic growth. Furthermore, the consumer price inflation is under control and is expected to be around 4.5%. This provides stability and injects certainty which positively impacts the purchasing power of consumers and reduces cost of living thereby improving the overall quality of life.
Although G7 nations (USA, Canada, France, Germany, Italy, Japan and UK) are considered the world's most advanced economies, their estimated average growth rate is roughly around 1%. In contrast, the BRICS group (Brazil, Russia, India, China and South Africa) which includes important developing countries, has a significantly higher average growth forecast of 3.6%. Additionally, measured in terms of purchasing power parity, 35% of the world’s GDP comes from BRICS as compared to 30% from G7 countries. This indicates a shift in economic power towards the Global South and underscores the growing importance of BRICS type groupings in international relations. No surprise that BRICS has now expanded from the original five countries to a ten nation group with another three dozen countries waiting in line to join.
With a GDP of over 28 trillion dollars, the USA still stands as the world's largest economy with a growth rate of 2.6% for this year. Recovering from a recession, considered one of the most advanced economies in the world, Canada's GDP growth stands at 2.4%. Furthermore the stagnating economy of the United Kingdoms enabled India to surpass and secure a position as the fifth largest economy in the world in 2021. The UK is just starting to come out of recession and is expected to grow at a rate of 1.5% in 2025, a significant increase since the previous year's prediction of 0.5%. The IMF has also predicted a growth of 1.3% in Germany and 1% in Japan for FY 2025. According toa report by Morgan Stanley, India is “on track to overtake Japan and Germany and hit the third spot by 2027.” France and Italy, constituting the remaining G7 members, have forecasted growth of 1.3% and 1.1% respectively. China’s growth is slowing and is estimated at 4.5%, and an article in Bloomberg suggests that “India's economy will accelerate to 9% by the end of the decade, while China will slow to 3.5%.” The G20 countries also consist of Brazil and South Africa, with 2.1% and 1.3% respectively.
With India emerging as the fastest growing economy among the G20 nations this year, the stage is set for a take-off. The challenge will now be to become the financial, manufacturing and services power-house that will not only improve the lives of Indians but also become a growth magnet for the international community.
