Is India's Rise to the 4th Largest Economy Overhyped?
Is India's Rise to the 4th Largest Economy Overhyped?
India’s economy is on an impressive trajectory. According to the IMF, we're just a year away from overtaking Japan to become the world’s fourth-largest economy, right behind the US, China, and Germany. And if we maintain this pace, Germany could be next.
By 2047, the numbers look even more striking. We could be a $35 trillion economy, contributing a hefty 20% to global growth!
Exciting times, right? This growth is evident not just on paper but also at the ground level.
Take rural India, for instance. People have more disposable income. FMCG companies are seeing increased sales of essentials like soaps and biscuits. Demand for the rural job scheme MGNREGA is declining as better-paying jobs attract people away. Salaried jobs are also on the rise, jumping to 21%.
There’s also a construction boom. Highways, bridges, and metros are being built, thanks to over $100 billion in annual infrastructure government spending. Manufacturing is experiencing a revival as well, with production-linked incentives drawing global giants to India. For example, Apple is set to manufacture over 20% of its iPhones here by 2025.
The services sector is thriving too, especially in IT and business consulting. A major change is the rise of women in the workforce. In 2017, only 20% of women aged 15 and above were part of the labor force. Today, that figure has climbed to over 37%.
Lastly, India’s fintech revolution is transforming governance. Aadhaar, UPI, and DigiLocker have reduced corruption, streamlined governance, and saved the government 1% of GDP as of March 2021. These savings have been redirected into infrastructure and social welfare.
Indeed, India is proudly wearing the badge of the world’s fastest-growing major economy.
But before we get too excited, let’s pause and ask: Is this growth enough?
While India’s growth story is promising, there are some concerning gaps.
You’ve probably heard of the demographic dividend, which is when the working-age population outnumbers dependents. India is right in the middle of this period. However, this window is closing fast, as the proportion of young people is expected to decline over the next 15 years. The issue? We’re not creating enough high-skill jobs. As a result, many in the workforce are stuck in low-paying agricultural work or spending years preparing for competitive exams. Our education and skill development systems aren’t adapting quickly enough. For comparison, in FY23, only about one in ten young people in India had a job.
China’s story provides some perspective. When China overtook Japan in 2010 to become the world’s second-largest economy, Japan’s share of global GDP was over 8%. By the time India surpasses Japan, its share will be under 4%. India’s climb is significant, but it won’t have the same global impact as China’s did.
India also faces a workforce issue. Its labor force is only three-quarters the size of China’s, partly because fewer women are employed. This imbalance is a concern. If half the population isn’t contributing to the economy, we’re not maximizing our potential. While female labor participation has risen sharply in recent years, it still lags behind China’s 60%.
This gender gap makes it harder for India to become a global manufacturing hub. We’re struggling to fully capitalize on the China+1 strategy, where companies are diversifying manufacturing away from China. Even if we meet the government’s $1 trillion goods export target by 2030, we’ll only account for 3% of global trade — a milestone South Korea reached years ago.
While services are growing, with India’s global exports projected to hit 6% by 2030, services alone can’t replace the transformative impact that a robust manufacturing sector has on global supply chains and employment. For example, the textile industry in India employs 4.5 crore people, while the IT-BPM sector employs just 55 lakh.
Another challenge is the savings problem. India’s gross savings rate hovers around 30%, which is insufficient to fund the infrastructure and development needed. Unlike China, which powered its rapid industrialization through domestic savings, India relies heavily on foreign investments. However, foreign money can only do so much to address structural funding and infrastructure gaps.
India’s economic rise is undeniably worth celebrating. We’re making significant progress, which benefits the economy. But it’s also important to keep a balanced perspective, especially when new growth projections appear regularly.
After all, overtaking Japan is an achievement, but it’s not the finish line. To truly solidify our place in the global economic hierarchy, we must focus on creating high-skill jobs, bridging the gender gap in the workforce, and boosting domestic savings.
The clock is ticking on our demographic dividend, and the stakes are high. The question is: will we seize this golden opportunity or let it slip away?
What do you think?
Next Story
Comments