By Meenakshi Iyer
The last 10 years under Prime Minister Narendra Modi’s leadership have seen a new India emerging, where it has fared relatively well compared with other countries as far as the government debt to Gross Domestic Product (GDP) ratio is concerned.
Today, the country is the third least indebted nation among low- and middle-income countries (LMIC), making it the world’s fastest-growing economy. India had a debt-to-GDP ratio of 81 per cent in 2022 — significantly lower than economies like Japan (260.1 per cent), Italy (140.5 per cent), the USA (121.3 per cent), France (111.8 per cent), and the UK (101.9 per cent) in the same period.
India's share of short-term debt in the total external debt is 18.7 per cent. This is also lower than that of other LMICs like China, Thailand, Turkey, Vietnam, South Africa, and Bangladesh, which have higher percentages.
Today, the stellar performance of the Indian stock market is being aided by a GDP growth forecast, inflation being at a manageable level, and political stability at the central government level. In the words of Finance Minister Nirmala Sitharaman, “most investors who visit India are keen to see where their money can be placed or parked”.
Riding on the overall economic growth across the spectrum, India can achieve the 'Viksit Bharat' status even before 2047, according to Union Minister Hardeep Singh Puri. Addressing the 'Digital Bharat, Viksit Bharat' event in New Delhi this week, the Minister said that India is the only economy that is growing, even at the most conservative estimate, at over seven per cent, to become the fourth and then the third-largest world economy sooner than expected.
"This will happen only because of the quality of the transformation which has been facilitated by Prime Minister Narendra Modi's government and its conducive policies," Puri said.
India: An alternative investment destination
According to the latest ‘World Economic Situation and Prospects’ report of the United Nations, India has become an alternative investment destination for many Western companies. The report identified increased foreign investments as an important factor that is propelling the country’s GDP growth.
“The better outlook for India is fueled by lower inflation, robust exports, and increased foreign investments,” said Hamid Rashid, the chief of the UN’s Global Economic Monitoring Branch. "India has become an alternative investment source or destination for many Western companies”.
A latest Capgemini report has disclosed that 65 per cent of top executives of multinational companies who want to shift their supply chains out of China, plan to invest in India. The success in import substitution in the telecom sector was now as much as 60 per cent, reflecting the higher self-reliance achievement as part of the government’s ‘Aatmanirbhar Bharat’ policy.
Speaking at a session on the second day of the 'CII Annual Business Summit 2024' in New Delhi over the last weekend, G20 Sherpa and former NITI Aayog CEO Amitabh Kant said India is likely to contribute 30 per cent of the global GDP between 2035-2040.
From ‘fragile 5’ to ‘top 5’
The structural reforms in the country have elevated the country from the "fragile 5" to the "top 5". The huge amount of reforms across the spectrum has resulted in a growth rate of about 8.4 per cent over the last three quarters. “By 2027, we will overtake Germany and Japan. Analysts are right in saying that 30 percent of the global GDP growth will come from India between 2035-2040,” said Kant.
India will become the third largest economy in the world by 2030, said an S&P Global report recently, adding that the country will be the fastest-growing major economy in the next three years. The United Nations has also revised India’s growth forecast for 2024 by 70 basis points to 6.9 per cent, from 6.2 per cent estimated in January.
Can India pip China?
If we look at the economic growth, India’s GDP growth has been exceeding China's for a few years now. While India clocked GDP growth at around 7.5 per cent in 2023, China's growth hovered around 5 per cent. For the first quarter (Q1) this year, China’s GDP grew 5.3 per cent. On a quarter-on-quarter basis, it grew a mere 1.6 per cent.
The International Monetary Fund (IMF) has pegged India's growth projection to 6.8 per cent this year, an increase of 0.3 per cent over its January update, while China’s GDP growth has been pegged at 4.6 per cent in 2024 and is expected to slow down further to 4.1 per cent in 2025.
The IMF even projects China's growth declining towards 3.5 per cent in 2028 and estimates that by 2027, India will become the world’s third-largest economy, after the US and China. RBI Governor Shaktikanta Das recently said that India's GDP growth for 2024-25 is projected at 7 per cent – way ahead in comparison to China’s growth, which is faltering.
A decade ago, India was the 10th largest economy, with a GDP of $1.9 trillion. According to the government, the 10-year journey is marked by several reforms, both substantive and incremental, which have significantly contributed to the country's economic progress.
Apart from India taking the big leap from the fragile five to the world's top five economies based on GDP in the last 10 years of the Narendra Modi government, a recent analysis by experts based on IMF data shows 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. The IMF data shows that in 2004, India's per capita GDP was $635 which is 35 per cent of the average per capita GDP of $1,790 for 150 countries.
At present, 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.
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.
