Indian Economy: India Overtakes Japan to Become 4th Largest Economy Target Germany Next
Indian Economy: Just before the start of the new year, great news has arrived for the nation. The Government of India has officially confirmed that India has overtaken Japan to become the world’s 4th Largest Economy. Furthermore, according to government projections, India is set to surpass Germany within the next three years to become the third-largest economic power globally.
Goldilocks Moment: A Sweet Spot for the Economy
The government has termed the current economic situation as a ‘Goldilocks Moment’. This represents an ideal state where:
- The country’s economic growth is accelerating.
- Inflation remains under control.
Typically, high growth rates are accompanied by rising inflation. However, India is witnessing a unique scenario where growth is robust while the Consumer Price Index (CPI) remains low, creating a highly favorable condition for the economy.
GDP Statistics (Nominal)
This comparison is based on Nominal GDP, measured at current market prices and dollar exchange rates. The current standing of the world’s top economies is as follows:
| Country | GDP (Approximate) |
|---|---|
| USA | $28 Trillion |
| China | $18 Trillion |
| Germany | Over $4.5 Trillion |
| India | $4.187 Trillion |
| Japan | Slightly behind India |
Why Did Japan Fall Behind?
Several key factors contributed to India’s rise and Japan’s decline in the rankings:
- Growth Trajectory: As a developing nation, India maintains a real growth rate of 6-7%. In contrast, Japan, a developed nation, has seen growth rates of less than 1% for the past 30 years.
- Demographics: India possesses a vast youth population and a large domestic market. Conversely, Japan’s population is rapidly aging, leading to a workforce shortage.
- Currency Impact: The Japanese Yen has depreciated heavily against the Dollar. Although the Indian Rupee has also weakened, the fall of the Yen is much steeper, reducing their GDP in dollar terms.
- Structural Momentum: India is expanding in manufacturing and the digital economy, while Japan struggles with deflationary pressures.
Key Drivers of the Indian Economy
India’s success is driven by several pillars:
- Demographic Dividend: India’s median age is just 28 years, supporting both consumption and production.
- Infrastructure: The construction of highways, railways, and logistics parks is reducing logistics costs and increasing competitiveness.
- Manufacturing: Investment is rising due to PLI schemes and the ‘China Plus One’ strategy.
- Digital Infrastructure: Systems like Aadhaar, UPI, and GST have led to the formalisation of the economy.
Next Target: Germany
There is a strong possibility of overtaking Germany by 2029-30 (within the next 3 years). This is because Germany is an export-dependent economy currently facing global slowdowns and energy crises. India’s growth rate is 2-3 times higher than Germany’s. Additionally, an upcoming revision of India’s Base Year from 2011-12 to 2022-23 is expected to reflect an even larger economy size.
GDP vs Per Capita Income: Reality Check
Despite ranking fourth in economic size, India still lags significantly in Per Capita Income:
- India: Due to a population of 1.4 billion, per capita income is approximately $2,800.
- Japan: With a smaller population, per capita income is around $34,000 (about 12 times higher than India).
The true benefit of this growth will be realized when it translates into better jobs, education, and healthcare services. However, it may take some time for international bodies like the IMF and World Bank to update their databases to reflect these new rankings.
