Explained: India’s journey to 3rd largest economy by 2027

PM Modi’s optimism that the country would become the third largest economy by 2027 has some basis as the country has become the fifth largest economy during his tenure, from the 10th largest economy when he took office in 2014 and has a 2.6 percent share in the world GDP.

New Delhi:An optimistic Prime Minister Narendra Modi Thursday said that India would become the third largest economy by 2027, two years before the several forecasts that projected that India would become the third largest economy after the USA and China only in 2029. In order to become the third-largest economy by 2027, India needs to surpass both Japan and Germany, the third and fourth-largest economies at present.

Can India become 3rd largest economy by 2027?

Prime Minister Modi’s optimism that the country would become the third largest economy by 2027 has some basis as the country has become the fifth largest economy during his tenure, from the 10th largest economy when he took office in 2014 and has a 2.6 percent share in the world GDP. In the last 9 years, the country has become the fifth largest economy with 3.5 percent share in the world GDP and is expected to have 4 percent share in the world GDP by 2027 which would make the country the third largest economy in the world leaving behind Japan and Germany.

Global economic order

At present, the USA is the world’s largest economy followed by China, Germany and Japan and India has acquired the fifth spot by leaving behind countries such United Kingdom, France and Italy in recent years. According to some estimates, with India’s growth rate of 6-7 percent in recent years, the country would be able to surpass both Japan and Germany in the same year 2027 to occupy the tag of the world’s 3rd largest economy.

In 2014, when Prime Minister Modi took assumed office, the USA was the world’s biggest economy with a size of over $17.5 trillion and a share of over 22 percent in the world GDP. In the same year, China was the second largest economy with a size of its GDP being over $10.5 trillion and a share in the world GDP at 13.2 percent.

Similarly, Japan was in third place with a GDP of $4.81 trillion and a share of 6.2 percent in the world GDP. In 2014, India was at the 10th place after the US, China, Japan, Germany, UK, France, Brazil, Italy and Russia and the size of India’s economy was little over $2 trillion and its share in the world GDP was 2.6 percent.

What changed in the last 9 years?

India has maintained a high pace of economic growth and it has become a nearly $3.4 trillion economy leaving behind countries such as the UK, France, Brazil, Italy and Russia. At present, the US is still the world’s largest economy with a GDP of over $25.4 trillion and its share in the world GDP has gone up to 25.4 percent.

China has retained as the second biggest economy with a GDP of over $18 trillion and its share in the world GDP at around 18.1%. However, there is a huge gap between the second-largest economy and third, fourth and fifth largest economies. In 2022, Japan is a distant third largest economy with a GDP of $4.234 trillion and its share in world GDP is at 4.2%.

Similarly, Germany is the distant fourth largest economy with its GDP at $4.075 trillion and its share in the world GDP at 4.1%. While India is at the fifth place with a GDP of $3.39 trillion and its share in the world GDP at 3.4% but the huge gap between China’s economy, which is more than four times the size of the third and fourth largest economies (Japan and Germany), presents a right opportunity for India.

According to an analysis by the SBI Research team, India needs to growth at a combined annual growth rate (CAGR) of 8.4 percent in dollar terms. It means that the nominal GDP growth rate should be 11 to 11.5 percent in rupee terms which seems achievable.

Can India maintain the momentum?

India has maintained a medium-to-high growth rate since 2004 except a brief period of 2008-09 economic crisis and marginal blip in 2013-14 period. India’s share in the world GDP was a meager 1.6 percent in 2004 but since then it has grown to 3.3 percent in 2018-19. India’s share is expected to grow to 3.7 percent in the next two years from the present share of 3.4 percent.

If the country is able to maintain its growth momentum then its share in the world GDP would increase to 4.1% by the March 2028. It means the country can surpass both Japan and Germany sometime in 2027. According to a forecast by the International Monetary Fund (IMF), the USA will still be the world’s largest economy in 2027 with the size of its GDP at over $31 trillion and its share in the world GDP would be 24.4%, a decline of 1 percent from its share in the world GDP in 2022.

Similarly, as per IMF’s projection, China would be the second largest economy with the size of its GDP at $25.72 trillion and its share in the world GDP would see an increase of over 2 percent, from 18.1 percent to 20.2 percent. In the same year, India’s GDP is expected to grow to $5.15 trillion and its share in the world GDP would be 4 percent. It means India would leave behind Japan and German as their GDP is expected to grow to $5.07 trillion and $4.497 trillion respectively.