Indian Economy: Current state and the road ahead

It is now no breaking news that India has surpassed the UK to become the fifth-largest economy in the world. It was only a matter of time before it happened.

And the time has finally come. Even after the devastating effects of the Covid-19 pandemic, India has seen a rise in its economy and has managed to bag the 5th spot, this time, leaving its colonial masters behind.

As stated by the Ministry of Statistics and Programme Implementation, the real GDP prices in the 1st quarter of 2022-23 have been estimated to attain a level of ₹36.85 lakh crore, which clearly shows a growth of 13.5 per cent.

The nominal GDP in the 1st quarter of 2022-23 is estimated at ₹64.95 lakh crore, showing a growth of 26.7 per cent. The nominal GDP at the June rupee-dollar exchange rate comes to around $823 billion. 

The fiscal deficit of the government stood at 20.5% of the full-year target, which was 21.3% in the 1st quarter of the last financial year, which indicates an improvement.

India surpassed the UK's GDP in the January-March quarter itself. During that quarter India’s GDP was $864 billion compared to the $813 billion of the UK. This data comes from various departments and ministries and have been used as valuable sources of input for the estimates.

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Various indicators like the Index of Industrial Production (IIP), the financial performance of listed companies in the Private Corporate Sector based on available quarterly financial results for these companies, Crop Production Targets for 2022-23, Net Tonne Kilometers and Passenger Kilometers for Railways, Passenger and Cargo traffic handled by Civil Aviation, Cargo traffic handled at Major Sea Ports, Fish Production, Sales of Commercial Vehicles, Bank Deposits & Credits, Accounts of Central & State Governments, etc. have been used for the sector-wise estimates. 

In its April World GDP Outlook, the International Monetary Fund (IMF) placed India's GDP in 2021 at $3.18 trillion just a notch below the UK’s GDP of $3.19 trillion. The IMF had also predicted that India would surpass the UK’s economy in 2022. As per the estimates in the same report, India would be a $3.54 trillion economy at the end of 2022 compared to the UK’s $3.38 trillion. 

The reason why both India's and the UK's GDP have decreased in terms of the dollar is that since March, the Indian rupee and the UK pound have weakened against the US dollar. The main reason for this fall in the rupee is the extreme rise in crude oil prices, foreign investors withdrawing money from the Indian market and the repetitive environment of domestic business.

According to provisional stock market data, foreign institutional investors were net sellers in the capital market. In June, Foreign Institutional Investors (FII) withdrew a sum of ₹50,203 crores from the stock market.

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India's economy has been growing at a very fast rate in both real and nominal rates as compared to the UK over a long period. India’s economy in terms of the dollar has grown at a rate of 5.71% Compound Annual Growth Rate over the past 10 years.

During the same period, the UK’s GDP has grown at a meagre 1.76%. And as India is likely to maintain a similar gap in GDP growth rate over the UK, the gap between the size of the two countries would only become bigger with India becoming a $5 trillion economy much before the UK.

According to IMF's projections, India is likely to become a $5 trillion economy by 2026 whereas the UK would be on the back foot at $4.35 trillion.

Now only the US, China, Japan and Germany are ahead of India in terms of the size of the economy. Germany’s economy was $4.2 trillion at the end of 2021. India is likely to surpass Germany and become the fourth-largest economy in 2027, according to IMF estimates. 

(Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.)