India’s Economic Growth: Fifth-Largest Economy with $5 Trillion Goal Deferred

Context:
India has officially retained its position as the 5th-largest economy in the world in terms of nominal GDP and is projected to become the 4th-largest within the next one to two years. However, the earlier goal of becoming a $5 trillion economy by 2025 has been deferred to 2029 due to the economic impact of the COVID-19 pandemic.

Key Highlights

• India’s GDP has grown at an average rate of nearly 8% over the last three fiscal years (2021–22 to 2023–24).
• In nominal terms, India’s GDP for 2024–25 is estimated to be $3.9 trillion, falling $1.1 trillion short of the original $5 trillion target set for FY 2024–25.
• Service sector and manufacturing recovery have contributed significantly to the recent growth momentum.
• International financial agencies, including the IMF and World Bank, project India will overtake Germany as the world’s 4th-largest economy by 2026.

Reasons for Delay in $5 Trillion Target

• Pandemic impact (2020–22): Severe disruption in demand, investment, and global trade.
• Global inflation and supply shocks post-COVID and post-Ukraine war.
• Rising interest rates and geopolitical uncertainties affecting export and capital flows.
• Domestic challenges: uneven income recovery, rural demand stagnation, and structural inefficiencies.

Way Forward

• Strengthening infrastructure and logistics under Gati Shakti and NIP.
• Boosting manufacturing and exports under Make in India and PLI schemes.
• Expanding digital and financial inclusion to support informal sector productivity.
• Fiscal consolidation while maintaining capital expenditure growth.

Relevance for UPSC

Prelims:

• India’s rank by nominal GDP
• Target year for $5 trillion economy
• Growth rate in recent years (approx. 8%)
• IMF, World Bank GDP forecasts

Mains (GS Paper 3):

• Macroeconomic fundamentals and fiscal strategies
• COVID-19 impact on medium-term growth
• Growth vs inflation vs employment debate
• Structural reforms needed for sustainable growth

Sample MCQ

Q. As per projections in 2025, India is expected to become the 4th-largest global economy by overtaking which country?
A. United Kingdom
B. Germany
C. Japan
D. France

Answer: B

Explanation:
India is currently the 5th-largest economy and is projected to surpass Germany, becoming 4th by 2026.