Will India's GDP overtake UK, Germany and Japan this decade?

Latest forecasts from India’s National Statistics Office (NSO) say the country’s economy will rebound sharply in FY22 to achieve GDP growth of 9.2% – making India’s economy worth US$3.1 trillion.

The Reserve Bank of India (RBI) is even more bullish in its estimate, predicting GDP growth of 9.5% – a figure echoed by the International Monetary Fund (IMF).

The sharp rise is partly due to a strong recovery in India’s manufacturing, construction and services industries.

The latest figures from the World Bank put Japan’s nominal GDP at US$5.06tn yet many observers predict India will overtake Japan this decade to be the second-largest economy in Asia, behind China.

In fact, IMF’s World Economic Outlook (October 2021) stated that India would lead global growth from FY22, even overtaking China, and would maintain that position for at least the following five years.

Consultancy EY has predicted that India’s economy will pass the landmark US$5tn mark by FY28 – downgrading its forecast from FY25 due to the impact of the COVID-19 pandemic.

However, India looks set to rebound faster than virtually all other countries, and that prolonged growth should see it become the leading economic force that has been promised for so long.

NSO downplayed its 9.2% growth estimate, adding that it did not take into account a number of variables – not least the ongoing pandemic.

India's economy surging ahead when comparing Purchasing Power Parity

The World Bank’s latest data (above, from 22 December 2021) makes for interesting reading, especially when you compare where India sits when comparing PPP adjusted GDP rather than nominal GDP.

Purchasing Power Parity (PPP) is often a preferred metric from economists as it compares economic productivity and standards of living between countries. Essentially, it takes into account the value of a currency in terms of what it can purchase domestically.

When considering PPP adjusted GDP, India currently sits third in the world with US$8.97tn – a figure that is 237% higher than its Nominal GDP. In comparison, Japan’s PPP figure is less than 4% higher than Nominal GDP.

If India’s economy were to grow consistently at the rates EY has forecast, and if PPP were at the same multiplier, then once nominal GDP hits US$5tn, PPP adjusted GDP would be close to US$17tn.

Not only would that place India firmly in third place globally, but it would be fast catching the United States, which currently has a PPP adjusted GDP of US$20.89tn.

Of course, there is still one startling statistic that warrants mention – GDP per capita. India’s large population means it currently has by far the lowest rate in the Top 25 countries at just US$1,927. In context, the next lowest is China with US$10,434, while citizens of the United States enjoy US$63,413 per capita – 33 times that of India.

That figure will need to increase sharply for India to move more millions out of poverty as it embraces digital transformation and the creation of a growing, affluent middle class.