02.06.2025
India: World’s Fourth Largest Economy
Context:
In early 2025, India overtook Japan to become the fourth-largest economy in the world by nominal GDP, according to a NITI Aayog report.
About the News:
- India’s GDP crossed $4.2 trillion, ahead of Japan.
- Growth driven by services, reforms, and digital tools.
- India aims for a $5 trillion economy soon.
- Rankings are based on nominal GDP, not per capita.
What is GDP (Gross Domestic Product ):
GDP refers to the total monetary value of all final goods and services produced within a country during a specific time period. "Final" here means goods or services used directly by consumers, not for further production.
Main Drivers of GDP Growth:
GDP is driven by four key types of expenditure:
- Private Consumption: Spending by households on goods and services (also called Private Final Consumption Expenditure – PFCE).
- Government Spending: Expenses incurred by the government on its daily operations, like salaries (Government Final Consumption Expenditure – GFCE).
- Investment: Expenditure on infrastructure, machinery, etc., to enhance the economy’s productive capacity (Gross Fixed Capital Formation).
- Net Exports: The value of goods exported minus the value of goods imported (Exports – Imports).
Formula for GDP:
GDP = Private Consumption + Investment + Government Spending + (Exports − Imports)
Characteristics of Indian GDP:
- Service sector leads, contributing over 50% to GDP.
- Digital infrastructure like UPI and ONDC enabled growth.
- Government launched PLI and Gati Shakti schemes.
- India's economic size increased, but challenges remain.
- Vision includes inclusive and sustainable development.
- Growth needs to be linked with social progress.
Challenges:
- High youth unemployment, around 15–18%.
E.g., educated graduates unable to find jobs.
- Low per capita income, near $2,000.
E.g., far lower than Japan’s $34,000.
- Inequality is rising, top 1% holds 40% wealth.
E.g., income gaps across urban-rural India.
- Agricultural distress due to low productivity.
E.g., 45% workforce, but only 18% GDP contribution.
Way Forward:
- Create jobs through MSME and startup support.
E.g., skill-based hiring in local industries.
- Boost rural investment, especially in education and health.
E.g., rural health missions, school infrastructure.
- Strengthen manufacturing via labor-law reforms.
E.g., ease of doing business for textile units.
- Raise R&D spending to encourage innovation.
E.g., aim for 1%+ GDP on research like developed nations.
Conclusion:
India’s economic size has grown rapidly, but real success lies in improving people’s lives. To maintain global leadership, India must combine economic output with social equity, quality jobs, and innovation.