Source: The post India becomes fourth largest global economy has been created, based on the article “India may soon become the third-largest economy in the world. But there is more to it” published in “Indian Express” on 31 May 2025. India becomes fourth largest global economy.
UPSC Syllabus Topic: GS Paper3- growth and development
Context: India is expected to overtake Japan as the world’s fourth-largest economy, based on nominal GDP, according to IMF projections. This marks a significant moment in India’s economic journey and global positioning, triggering comparisons with past power shifts and varied international responses.
India’s Economic Rise
- Historical Perspective: The sustained growth of India’s economy since 1991 has steadily increased its global prominence. Former finance minister Manmohan Singh predicted India’s emergence as a major economic power, citing Victor Hugo’s notion of an unstoppable idea whose time had come.
- Recognition by Angus Maddison: Angus Maddison’s influential study underscored India’s potential resurgence. He noted that in 1700, China and India together generated half of global income. Colonialism and Europe’s Industrial Revolution caused their subsequent economic decline, but recent growth rekindles hope for their global economic revival.
Comparing India and Japan
- Nominal vs. Per Capita GDP: India’s nominal GDP ($4.187 trillion) narrowly surpasses Japan’s ($4.186 trillion), but significant disparities remain. India’s per capita GDP is only $2,880 compared to Japan’s $33,900, highlighting India’s ongoing developmental status versus Japan’s mature economy.
- Demographic and Economic Factors: India’s youthful demographics support sustained growth, contrasting Japan’s ageing population. However, Japan remains an advanced industrialized economy, whereas India continues as a developing, lower-middle-income nation.
Japan’s Economic Struggles
- Impact of China’s Rise: China overtook Japan in 2010 during the global financial crisis, marking a pivotal geopolitical shift. Unlike India’s current overtaking, China’s rise prompted significant alarm in Japan, intensifying economic anxiety and influencing domestic politics.
- Abenomics and Economic Revival Attempts: Japan responded to its economic challenges through Prime Minister Shinzo Abe’s “Abenomics”—monetary easing, fiscal stimulus, and structural reforms aimed at boosting growth. While initially hopeful, Japan’s momentum slowed post-Abe due to weak leadership and external pressures, notably from the U.S.
- Germany’s Competitive Pressure: Germany recently overtook Japan, pushing it to fourth place. Fluctuations between these two slowing economies illustrate persistent volatility in global economic rankings.
Japan’s Reaction to India’s Rise
- Minimal Impact and Reporting: India’s overtaking of Japan elicited minimal concern in Japan. Unlike China, India is viewed positively as an economic opportunity rather than a competitive threat, partly due to strong bilateral diplomatic and economic relations.
- India as Opportunity, Not Threat: Japan perceives India neither as a trading competitor nor geopolitical rival. This contrasts starkly with Japan’s reaction to China’s rise, reflecting the differing international roles of these Asian economies.
Future Economic Dynamics
- Ranking Volatility: Exchange rate fluctuations, global trade dynamics, and seasonal performance mean India, Japan, and Germany might continue shifting rankings temporarily. The small economic differences keep the competition alive.
- Long-term Positioning and Strategy: India’s trajectory towards becoming a stable third-largest economy is promising, provided it crosses the $5 trillion mark decisively. India’s long-term strategy should emphasize inclusive and competitive growth, improving domestic living standards rather than merely chasing rankings.
Question for practice:
Question Examine how India’s economic ascent and demographic advantage differ from Japan’s developed economy and ageing population, and what this implies for future global economic rankings.
