Friday, February 23, 2024

India could be the third-largest economy soon, but what about GDP per head?

India will become the third largest economy in FY28, finance minister Nirmala Sitharaman said at the recent Vibrant Gujarat summit. This is the view of the International Monetary Fund as well, and is a good thing, but it won’t by itself bring major improvements to the quality of life of the average Indian.

Unless India can achieve double-digit growth for a decade or more, GDP per capita will remain low, not just relative to that of larger economies, but to those of middle-income countries as well.

Here are the growth rates the IMF forecasts for the US, China, Japan and India for the next five years.

Based on the World Economic Outlook’s projections for 2024 GDP and the growth rates above, the GDP of these economies, in billions of current US dollars, would be as follows.

Here are the World Bank’s projections of population size for these countries in 2028.

This translates to the following GDP per capita in current US dollars:

If the US grows 1% in 2028, it will add $303 billion to global output. India would have to grow nearly 6% to add a similar quantity. To equal the increase in output achieved by 1% growth in China in 2028, India would have to grow by more than 4%.

India’s current GDP per capita is 4% of the average American’s, less than 10% of average Japanese citizen’s, and 23% of the average Chinese citizen’s.

As a low-income country, it is easier for India to grow quickly than it is for larger economies. This does not mean that India’s growth performance is to be deplored.

But the simple fact is that for economic growth to raise the incomes of citizens, growth will have to accelerate to double digits and stay there for a decade or more, as China’s did during its high-growth years.

#India #thirdlargest #economy #GDP

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