India's ascent from the 'Fragile Five' to the fastest-growing major economy has lessons for other developing countries
By TSAT Team
Apart from India taking the big leap from being among the ‘Fragile Five’ economies to the world's top five economies based on GDP in the last 10 years of the Prime Minister Narendra Modi government, an analysis by experts show that the country's relative performance compared with its peers has also turned better, which was not the case earlier.
A higher per capita GDP growth also means that the standard of living of the people is rising as each person has more money to spend on the country’s 78th Independence Day.
Latest IMF data shows that in 2004, India's per capita GDP was $635 which is 35 percent of the average per capita GDP of $1,790 for 150 countries listed as "emerging market and developing economies" by the multilateral financial institution. These peer countries include China, Russia, Brazil, and countries in South America, Africa, the Middle East as well as parts of Eastern Europe.
Experts point out that this figure of 35 per cent declined to 30 per cent by 2014 which shows that India became relatively poorer than these 150 countries which performed better. However, this ratio increased from 30 per cent in 2014, to 37 per cent in 2019, according to IMF figures.
India's per capita GDP in 2024 has shot up further to $2,850 which works out to 42 per cent of the $6,770 for its peer countries. This means that the gap has been narrowed with India's economic performance being better than the other emerging economies in the last 10 years.
IMF data also shows that in 2004, India's economy was 37 per cent the size of the Chinese economy but by 2014, it had fallen to a mere 19 per cent as China was clocking a much higher rate of growth. However, with the Indian economy growing at a much faster growth rate than China, the tables are being turned and the relative size of the economy has gone up to 22 per cent.
Based on the strong macroeconomic fundamentals, India is now headed to be the third largest economy surpassing Germany and Japan and what is equally important is that the per capita GDP is rising reflecting a better standard of living for the people.
(Photo courtesy: X@PIB)
Lessons for other countries
According to Suman Bery, vice chair of NITI Aayog, India’s ascent from the "Fragile Five" to the fastest-growing major economy has lessons for other developing countries.
Speaking to the media recently, Bert said that India has its own challenges, and one reason for India's success is that it has mechanisms to come up with its own solutions. “With Prime Minister Modi, having been at the helm for ten years and now having been selected to be Prime Minister, another five years, I think there are certain lessons to be drawn”, he was quoted as saying.
A lot of that has to do with sheer economic management, making sure that the inflation rate is down, good administration, the GST (Goods and Services Tax. Above all economic and financial stability was important and the government had its mandate.
The “Fragile Five” term was coined by the international investment company Morgan Stanley that lumped India with four other developing nations signalling their economic vulnerability. That was a year before Narendra Modi’s election to his first term as Prime Minister.
The International Monetary Fund has also reiterated India’s position as the fastest-growing economy with a growth rate of 7.5 per cent for this year, continuing the world record for the seventh year in a row.
Around 135 million Indians escaped multidimensional poverty in the five years between 2015-16 and 2019-21, made possible through integration of social safety nets, infrastructure development and multiple financial inclusion programs.
India has achieved progress towards this and other goals encompassing ending hunger, extending healthcare, fighting climate change, and institution-building “in a participative, democratic framework with orderly transfers of power at the level of Indian states and at the centre”, he said.
Union Commerce and Industry Minister Piyush Goyal said recently that the country has moved from "Fragile Five" under the UPA government to "Top Five" in the BJP-led NDA government.
India is on track to become the world's third-largest economy with GDP crossing $5 trillion, and the goal is now to reach a $30 trillion economy by 2047 with a per capita income of $18,000 per annum, according to a key NITI Aayog document.
Forex reserves at historic high
India's foreign exchange reserves reached a historical high of $675 billion (as of August 2) as overall, India's external sector remains resilient with key indicators continuing to improve.
"We remain confident of meeting our external financing requirements comfortably," says RBI Governor Shaktikanta Das. He also said that India’s current account deficit (CAD) moderated to 0.7 per cent of GDP in 2023-24 from 2.0 percent of GDP in 2022-23 due to a lower trade deficit and robust services and remittances receipts.
In Q1 2024-25, the merchandise trade deficit widened as imports grew faster than exports. The RBI chief further stated that buoyancy in services exports and strong remittance receipts are expected to keep CAD within a sustainable level in Q1 2024-25. "We expect CAD to remain eminently manageable during the current financial year," he remarked.
On the external financing side, foreign portfolio investors turned net buyers in the domestic market from June 2024 with net inflows of $ 9.7 billion during June-August (till August 6) after witnessing outflows of $ 4.2 billion in April and May, the central bank chief said.
Fastest growth in intangible investments
Intangible investments have shown remarkable resilience compared to tangible investment in the recent past and India is the country among major global economies that experienced the fastest growth in intangible investment from 2011 to 2020.
The World Intellectual Property Organisation (WIPO) said in its report that India recorded the fastest growth in intangible investments, exceeding countries like Sweden and the US -- the two most intensive economies in terms of intangible investment as a share of GDP.
“India’s performance is also comparable with that of certain advanced economies, its intangible investment level in 2020 being close to that of Sweden,” the WIPO report mentioned.
Intangible assets include research and development (R&D), software and data, design, brands and reputation, supply-chain expertise and top-tier skills and all assets that either result from or interact with intellectual property (IP) in some form.
