India on Track to Be Fourth-Largest Economy

What Happened?

1. According to the April edition of the IMF’s World Economic Outlook Report, India’s nominal GDP is expected to reach about $4.19 trillion in FY26.

What are the Key Highlights?

1. India’s economy has grown a lot in the past 10 years.
2. It was the 10th largest economy in the world in 2014.
3. India will become the 4th largest economy by 2025.
4. The size of the Indian economy (called GDP) was around $2 trillion in 2014.
5. It became $3.9 trillion in 2024 and is expected to cross $4.18 trillion by 2026.

What is GDP?

1. Gross Domestic Product (GDP) measures the total value created from goods and services produced in a country or region each year. When the GDP increases, it means the economy is growing.
   1. GDP per capita is calculated by dividing the total GDP by the population.
2. Nominal GDP (Gross Domestic Product) is the total market value of all final goods and services produced in a country during a specific period without adjusting for inflation.
3. This indicator shows changes in economic growth and income levels since 1990.
4. The data is adjusted for inflation and differences in the cost of living between countries.

Term	Definition	What it Measures	Inflation Adjustment	Why it is Useful
GDP	Gross Domestic Product is the total value of all goods and services produced in a country during a specific period.	It measures the overall economic output of a country.	It can be calculated with or without adjusting for inflation.	It helps understand the overall size and performance of a country's economy.
Nominal GDP	Nominal GDP is the value of all goods and services produced at current market prices in a given year.	It measures the economic output using current prices.	It is not adjusted for inflation.	It shows the present size of the economy but can be influenced by changes in price levels.
Per Capita GDP	Per Capita GDP is the Gross Domestic Product divided by the total population of the country.	It measures the average economic output or income per person.	It is often adjusted for inflation and cost of living.	It helps compare living standards and income levels across countries or over time.

What is India's Growth Story?

1. India's growth story is a journey of strong economic transformation, driven by reforms, strategic investments, and a youthful, aspirational population. A balance-of-payments crisis led to major economic reforms during the tenure of Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
2. These reforms marked the beginning of liberalization, which ended the License Raj, lowered import tariffs, and welcomed foreign investment into the country. As a result, the services sector, especially IT and software, became a key driver of economic growth.
   1. Large and Fast-Growing Economy: India is the fifth largest economy in the world at $3.9 trillion and third largest by purchasing power parity (PPP).
      1. It has also become the world’s fastest-growing democracy, with strong domestic consumption.
   2. Shift in Economic Structure: India has transitioned from an agriculture-based economy to a services-led economy (53%). Manufacturing and industry contribute around 28%, and agriculture now accounts for 18%.
   3. Focus on Manufacturing: Recognizing that services alone cannot drive growth for its large population, India has pushed for manufacturing through programs like Make in India (2014) and Atma Nirbhar Bharat (2020).
   4. PLI Schemes: The government introduced Production Linked Incentive (PLI) schemes in 14 sectors with investments over ₹1.97 lakh crore to boost manufacturing and global competitiveness.
   5. Emerging as Global Leader in Key Sectors:
      1. Second-largest mobile manufacturer after China.
      2. Known as the “Pharmacy of the World” with 20% of global generic drug supply.
      3. Third-largest automotive market, expected to double in size.
      4. Strong potential in electronics, fintech, renewable energy, and AI.
      5. Industrial Revolution 4.0: India is leveraging AI, IoT, robotics, and automation to enter the era of smart manufacturing. Collaboration with companies like NVIDIA and initiatives in chip manufacturing show promise.
      6. Collaborative Approach: Strong public-private cooperation, especially in AI and digital sectors, is transforming India’s technological future.

What is Purchasing Power Parity (PPP)?  Purchasing Power Parity (PPP) is a way to compare the value of money in different countries. It checks what people can buy with their money in each country. If two countries have the same PPP, people can buy the same things with the same amount of money. It helps us know which country is cheaper or more expensive.

What are the Challenges?

1. Low Per Capita Income:
   1. This means that the average income of each Indian is still low.
   2. India’s per capita income is around $2,880. But Japan’s is about $33,900 in 2025.
2. India has a Large Population:
   1. India now has the highest population in the world (1.4 billion people). So even if GDP increases, it gets divided among more people.
3. Poor People Still Struggle:
   1. Many people still don’t have enough income. There are problems like poverty, joblessness, and high income gaps between rich and poor.
4. Women in Jobs:
   1. Only 26% of women are working. The world average is 47%. This also reduces income for families.
5. Most Workers are in Informal Jobs:
   1. Around 90% of workers don’t have fixed salaries or job security. These people are often poor and do not get benefits like health care or pensions.

Way Forward:

1. Create More Jobs: The government should focus on job creation, especially for young people and women.
2. Improve Skills: People should get training and skills to get better jobs.
3. Support Small Businesses: Most jobs in India come from small and medium businesses (MSMEs). The government should help them to grow.
4. Spread Growth Across India: Development should not be limited to big cities. Villages and small towns also need investment.
5. Better Education and Health: The government must spend more on schools and hospitals. A healthy and educated population grows faster.
6. Support Farmers and Rural Economy: Good rainfall, low inflation, and proper government support can improve rural incomes.
7. Fair Income Distribution: Steps must be taken to reduce the gap between rich and poor.

Ensure IAS Mains Question: Q. “Nominal GDP alone cannot fully reflect the economic welfare of a country.” Explain this statement with reference to the concepts of Nominal GDP, Real GDP, and Purchasing Power Parity (PPP). Discuss their relevance in comparing economies. (Answer in 250 words)

Ensure IAS MCQ: Q. With respect to Gross Domestic Product (GDP), consider the following statements: Nominal GDP measures the total value of goods and services at current market prices without adjusting for inflation. Per Capita GDP is calculated by dividing the total GDP by the country’s population and is always adjusted for inflation. GDP growth indicates an increase in the economic output of a country over time. How many of the above statements is/are correct? (A) Only one (B) Only two (C) All three (D) None Ans: B Exp: Nominal GDP is defined as the total market value of all final goods and services produced in a country at current prices, without adjusting for inflation. Hence, Statement 1 is correct. While Per Capita GDP is calculated by dividing total GDP by the population. It is “often” adjusted for inflation and cost of living, not always. Hence, Statement 2 is not correct. An increase in GDP indicates economic growth, reflecting higher production of goods and services. Hence, Statement 3 is correct. Thus, option B is correct.

 

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