Subject:  Economy

Topic: Economic Growth, GDP Rankings, and Vision 2047.

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Topic: India Becomes 4th Largest Economy (Surpassing Japan)

 

Context: The Centre has announced that India has surpassed Japan to become the world’s fourth-largest economy with a GDP of $4.18 trillion and is now targeting the third spot (currently held by Germany) by 2030.

 

Key Highlights (The 'What')

• Economic Milestone:

  • India's GDP is now valued at $4.18 trillion, overtaking Japan.

  • Next Target: To displace Germany (3rd largest) by 2030 with a projected GDP of $7.3 trillion.

• Growth Drivers:

  • Q2 Growth: Real GDP grew by 8.2% in the second quarter of 2025-26, up from 7.8% in the first quarter.

  • Domestic Consumption: Growth is driven largely by robust private consumption and strong credit flows to the commercial sector.

• Global Confidence:

  • International agencies remain bullish: World Bank projects 6.5% growth in 2026; IMF projects 6.6% for 2025.

  • India remains the fastest-growing G20 economy.

• Vision 2047: The government aims to attain "high middle-income status" by 2047 (centenary of independence).

 

Critical Analysis (The 'Why' & 'Impact')

• Significance (Geopolitical Weight): Moving to the 4th spot enhances India's bargaining power in global forums (WTO, G20) and attractiveness as an investment destination ("China+1" strategy).

• The "Per Capita" Reality Check:

  • While aggregate GDP ($4.18T) is impressive, India’s Per Capita GDP remains low (~$2,800) compared to Japan (~$34,000). This indicates that the average Indian is still far poorer than the average Japanese citizen.

  • Inequality: The article mentions "urban consumption" strengthening, but if rural demand lags, it risks a "K-shaped recovery" where the rich grow faster than the poor.

• The "Middle-Income Trap" Risk: To reach the 2047 goal, India must avoid stagnating at the middle-income level (where growth slows as wages rise) by shifting from input-driven growth to productivity/innovation-driven growth.

 

Value Addition (Web Search - NITI Aayog Vision)

• Targets for 2047: According to NITI Aayog’s "Viksit Bharat @ 2047" approach paper, India aims to become a $30 trillion economy by 2047 with a per capita income of $18,000 (moving from lower-middle to high-income category).

• Demographic Dividend: Unlike Japan (which is shrinking/aging), India has a young workforce. However, this dividend expires around 2055, making the next two decades critical for capitalizing on labour force growth.

 

Mains Question

Q. "Becoming the fourth-largest economy is a milestone in 'Aggregate Growth', but the true challenge lies in 'Per Capita Development'." Discuss this statement in the context of India's Vision 2047. What structural reforms are needed to ensure this growth translates into equitable prosperity? (250 words)

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Prelims Practice Question

 Q. With reference to the recent trends in the Indian Economy and Global GDP rankings, consider the following statements:

1. In terms of Purchasing Power Parity (PPP), India is already the third-largest economy in the world, ahead of Japan and Germany.

2. The "Middle-Income Trap" refers to a situation where a country's growth stagnates after reaching high-income status due to an aging population.

3. According to recent government data, India has surpassed Japan in Nominal GDP terms to become the fourth-largest economy.

4. The target year for India to achieve "High Middle-Income" status is set for 2030.

Which of the statements given above are correct? 

(A) 1 and 3 only 

(B) 2 and 4 only 

(C) 1, 3 and 4 only 

(D) 1, 2 and 3 only

Answer: (A)

• Explanation:

  • Statement 1 is correct: In PPP terms, India has been 3rd for some time (after US and China).

  • Statement 2 is incorrect: The "Middle-Income Trap" occurs when countries stagnate at middle-incomelevels (not high-income) because they lose cost competitiveness in manufacturing but haven't yet mastered high-tech innovation.

  • Statement 3 is correct: As per the article, India has crossed Japan in Nominal GDP ($4.18T).

Statement 4 is incorrect: The article states the goal for 2047 is "high middle-income status" (though NITI Aayog actually targets "Developed/High Income" by 2047). The 2030 target mentioned is overtaking Germany (GDP size), not income status classification.