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PC: News on Air

Context:

B.V.R. Subrahmanyam, CEO of NITI Aayog, recently announced that India has surpassed Japan to become the world's fourth-largest economy (nominal GDP) and is on track to displace Germany within the next 2.5 to 3 years.

What is in the news?

According to the IMF World Economic Outlook (April 2025), India's nominal GDP is expected to reach $4.19 trillion, surpassing Japan's GDP of $4.18 trillion. This represents a significant shift in the global economic order and India's growing importance.

India’s New Economic Status

• Current Rank: 4th largest economy globally
• Previous Rank (2024): 5th, behind Japan
• New Rank Order (2025): United States, China, Germany, India, and Japan

Real GDP: It estimates the total value of goods and services generated in an economy after accounting for inflation. It reflects actual output growth by applying constant pricing from a base year. Nominal GDP: This metric calculates the total value of goods and services produced at current market prices, without accounting for inflation. This means that if prices rise owing to inflation, nominal GDP may appear higher even if actual output remains the same.

Drivers Behind India’s Economic Rise

Growth of the Services Sector

• IT, Fintech, and BPO sectors have driven a large share of India’s GDP growth.
  
  
• The services sector remains the largest contributor to GDP, with software exports and consulting services gaining global traction.
  
  

Digital Revolution

• Surge in UPI transactions, smartphone penetration, and internet access has catalyzed financial inclusion and digital commerce.
  
  
• The development of Digital Public Infrastructure (DPI) such as UPI, JAM Trinity (Jan Dhan, Aadhaar, Mobile) has laid the foundation for a tech-driven economy.
  
  

Demographic Dividend

• India’s median age is ~29 years, providing a young, productive workforce.
  
  
• Rising urbanization and lifestyle aspirations are boosting consumption-led growth.
  
  
• Urban population is projected to reach 600 million by 2030, further enhancing domestic demand.
  
  

Expanding Domestic Consumption

• Private consumption forms nearly 70% of India’s GDP, with both rural and urban demand playing key roles.
  
  
• Rising per capita income and improved lifestyle standards are fueling consumption.
  
  

Infrastructure Development

• Significant investments in transportation, energy, and digital infrastructure.
  
  
• Initiatives like the National Infrastructure Pipeline (NIP) and PM Gati Shakti aim to enhance logistics and project implementation.
  
  

Manufacturing Sector Growth

• Make in India and Production-Linked Incentive (PLI) schemes have boosted manufacturing capabilities.
  
  
• India is now a preferred destination under the China Plus One strategy, attracting firms like Apple to set up manufacturing units.
  
  

Reform-Driven Growth

• Major reforms include:
  
  
• Goods and Services Tax (GST) – unified domestic market.
  
  
• Insolvency and Bankruptcy Code (IBC) – streamlined insolvency resolution.
  
  
• Corporate tax cuts – incentivized private investment.
  
  
• Atmanirbhar Bharat – aimed at self-reliance and boosting local industries.
  
  

External and Global Realignment

• FDI inflows have surged due to global supply chain diversification.
  
  
• Strategies like China Plus One and Supply Chain Resilience Initiative (SCRI) are enhancing India’s role in global trade.
  
  

Rise in Per Capita Income

• India’s per capita income has nearly doubled, from $1,438 (2013–14) to $2,880 (2025), indicating a growing economy and improved living standards.

Challenges Still Faced by India

• Income inequality persists: Despite economic growth, wealth distribution remains uneven, resulting in a growing disparity between the rich and the poor, particularly following COVID-19.
• GDP growth does not always imply equal development or increased quality of life for all individuals.
• Low Per Capita Income: India's per capita income remains much below the high-income level of $14,005, limiting its global economic status.
• It remains in the lower middle income bracket, trailing behind Germany ($51k) and the United States ($85K).
• Urban-Rural Divide: There is a significant discrepancy in access to opportunities and services between urban and rural communities.
• Regional Imbalances: Some regions lag behind in development, impeding balanced national advancement.
• Mumbai has a per capita income of ₹6 lakh, whereas Bihar's is ₹ 55K. 
• Lack of Access to decent Services: Millions of Indians continue to suffer barriers to receiving decent healthcare, education, and employment.

Measures to Improve India’s Position

• Invest in Human Capital: Strengthening education, healthcare, and skill development is crucial for empowering citizens.
  
  
• Example: Effective implementation of the National Education Policy (NEP) and Ayushman Bharat can enhance long-term outcomes in both sectors.
  
  
• Skill Development: With over 65% of India’s population below 35 years, equipping youth with employable skills is vital.
  
  
• Example: In Aspirational Districts, targeted interventions in education and skills have shown promising results in transforming vulnerable regions.
  
  
• Social Security Expansion: Given India’s ageing population and dominance of the informal sector, a robust social safety net is essential.
  
  
• Example: Schemes like e-Shram and Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM) must be expanded and integrated for effective coverage.
  
  
• Inclusive Wealth Distribution: Economic growth must be inclusive and not just centered on wealth creation.
  
  
• Focus on progressive taxation, targeted welfare, and inclusive policies to empower tribal, rural, and women populations.
  
  
• Example: Dantewada (Chhattisgarh), once conflict-ridden, has seen positive transformation through investments in education, skilling, and livelihood programs.
  
  

Practice Question: Q. Analyze the drivers of this growth in the context of domestic structural reforms and global economic realignments.