India set to outdo Germany, Japan to become 3rd largest economy by 2029

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After reclaiming its position as the fifth largest world economy just recently from the United Kingdom, India is on course to outstrip two other major economies by the end of this decade to become the world’s third largest.

A report by India’s largest lender, the State Bank of India (SBI), argued that the world’s fastest growing major economy is likely to become the third largest economy by 2029, largely due to the structural shift since 2014.

The study asserted that India will likely surpass Germany in 2027 and Japan in 2029 to move atop the table if the current rate of growth is maintained.

Last week, the National Statistical Office (NSO) revealed data showing that India's GDP expanded at its quickest rate in a year during the April-June quarter by 13.5 per cent to reposition the world’s second populous nation as the world’s fifth largest economic power with a GDP at $3.5 trillion compared to the UK’s $3.2 trillion.

Over the last three months of 2021, India managed to topple the UK from its standing. The Indian economy in 'nominal' cash terms in the March quarter was $854.7 billion while UK's stood at $816 billion. This was on an adjusted basis, using the dollar exchange rate on the last day of the relevant quarter.

Three years ago, India's economy was the fifth largest in the world with a GDP of $ 2.94 trillion, overtaking the UK and France in 2019 to take the fifth spot. The size of the UK economy was $ 2.83 trillion and that of France at $ 2.71 trillion. However, in 2020, India was again overtaken by the UK due to the pandemic. It was predicted that India would pip the UK again only in 2024. But, the war in Ukraine and the persistent effects of Covid on the economy have caused a decline in the UK’s rankings.

Finance Minister Nirmala Sitharaman on Saturday sounded upbeat about India's double-digit growth in this financial year, saying that the nation is on a strong wicket when compared to others, and is responsive in terms of extending hand-holding to the required sections.

She also referred to the World Bank and IMF reports, according to which, the economies which were far more developed than India and comparable with the country, are on the verge of recession.

India is the only economy that looks promising amid the gloomy global picture. While the less than expected GDP growth data of the first quarter may have dampened hopes that India can achieve a 7.0 per cent annual growth rate in the current year, analysts are still optimistic that India can achieve the forecast 7-7.5 per cent growth estimate for the year to realise the dream of a $5 trillion economy in a few years.

According to the IMF projections, India is poised to take over Germany as the fourth largest economy in the next five years. Germany’s nominal GDP is estimated at $5.36 trillion by 2027 while India would be a $5.53 trillion economy by then. This gives India a comfortable lead against Germany even if figures were to be revised downward later.

Uday Kotak, managing director of Kotak Mahindra Bank, hailed India for achieving such an impressive milestone of $3.5 trillion economy versus the U’s $3.2 trillion but gave a reality check on the population denominator.

“But a reality check of population denominator: India: 1.4 billion vs UK 0.068 billion. Hence, India's per capita GDP is $2,500 vs UK's $47,000. We have miles to go."

When Prime Minister Narendra Modi took charge in 2014, India was in the 10th spot. If SBI’s forecast can become a reality, the jump of seven spots within 15 years might just be a remarkable feat of the Modi government.

"Interestingly, even as estimates of India's GDP growth rate for FY23 currently range from 6.7 per cent to 7.7 per cent, we firmly believe that it is immaterial. In a world that is ravaged by uncertainties, we believe 6.0 per cent to 6.5 per cent growth is the new normal," SBI’s chief economic adviser Soumya Kanti Ghosh argued.

The SBI report predicted that India will soon be the beneficiary as China slows down in terms of new investment intentions.

"Global tech major Apple's recent decision to shift part production of its flagship iPhone 14 model for worldwide shipping from India bears testimony to such optimism! The move by Apple, the most recognisable face of tech-infused innovation in the last two centuries, that captures aspirations of an upwardly mobile population should open the floodgates for other major conglomerates to follow suit," said the report.