India: The 5th Largest Economy in the World

Introduction

India's economy has grown significantly in the last few years, making it the fifth largest in the world and a major force in the global economy. India surpassed the United Kingdom to become the fifth-largest economy in the world. The only countries with economies now bigger than India's are the US, China, Japan, and Germany. In "nominal" monetary terms, the Indian economy was valued at USD 854.7 billion in the quarter ending in March 2022, compared to USD 816 billion for the UK.

This noteworthy accomplishment has changed the course of the world economy and spurred debate on India's prospects, difficulties, and growth trajectory. This article will look at the reasons behind India's economic growth, the difficulties it has faced, and the ramifications of having the world's fifth-largest economy. India is rated 122 out of 190 nations in terms of per capita income in 2021, which indicates that the country's per capita income is still extremely low.

Factors Responsible for India's Economic Growth

• Economic Reform:- India has liberalised its economy through several economic changes over the last few decades. Several initiatives have made doing business easier, drawn in foreign investment, and encouraged entrepreneurship. These include the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC), and the Made in India programme.

• Information Technology and Services:- India has established itself as a major hub for services and information technology (IT) worldwide. The GDP of the nation has benefited greatly from the IT sector, which includes software development, business process outsourcing (BPO), and IT consultancy. Indian IT companies are well-established globally, offering businesses all over the world affordable solutions.

• Demographic Dividend:- With a median age of about 28, India has a young population. This demographic advantage has resulted in a sizeable and vibrant labour force that boosts the economy and raises productivity. India's economy has grown significantly due in large part to the working-age population, which has drawn in foreign companies looking for competent workers.

• Startups and Entrepreneurship:- The burgeoning entrepreneurship and startup scene in India have played a pivotal role in propelling economic growth and innovation. By supporting aspiring business owners, programmes like Startup India have promoted an innovative and risk-taking culture.

• Infrastructure Development:- The Indian government has made infrastructure development a priority. Building highways, airports, and smart cities are examples of projects that attempt to improve connectivity, lessen logistical difficulties, and foster an atmosphere that is favourable for corporate growth.

• Foreign Direct Investment:- Net new foreign direct investment (FDI) into India has increased extremely quickly in subsequent years, setting a new high of USD 85 billion in the 2021–22 fiscal year. Over the past ten years, persistently high FDI inflows have increased India's foreign exchange reserves and lessened the country's exposure to its external account.

Issues Related to the Indian Economy

• Unemployment:- In India, unemployment is still a major issue, with variations seen in various areas and industries. As of July 2023, the overall unemployment rate in India is 7.95 per cent, according to a recent Bloomberg analysis that uses statistics from the Centre for Monitoring Indian Economy (CMIE) for July.

• Inflation:- In October 2023, India's annual retail price inflation was 4.87 per cent; by November 2023, it had increased to 5.55 per cent. El Nino caused a five-year low monsoon in 2023 that severely affected agricultural output.

• Unpredictable weather:- Our agricultural output is mostly dependent on the monsoon. Weather conditions hurt crop productivity if it is not received on time. It will eventually make food grains and other raw materials less accessible. It hurts the hotel industry. The monsoon is highly anticipated by Indians. Crop output and weather conditions are directly correlated.

• Slowing down in exports of goods:- Concern should be expressed over the industrial sector's 4.8% growth rate slowdown. Concerning is the fact that imports are more than exports. It will bring down the economy in all the sectors. The region or nation has a negative trade balance due to a trade deficit.

• Population growth:- India's population is expected to reach two billion by 2050 and surpass 1.5 billion by 2030 due to its unsustainable rate of growth. Because of the nation's fast population increase, resources and services are under strain, which exacerbates inequality, poverty, and environmental degradation.

• Unequal distribution of wealth:- For many years, income disparity has been a significant problem in India and remains a major source of worry for the nation. With the richest 1% of the population controlling over 50% of the nation's total wealth, the wealth gap between the rich and the poor has significantly expanded. The Indian economy has been greatly impacted by this income disparity, which has left many feeling deeply unfairly treated.

• Poverty:- People's health is mostly affected by poverty because of inadequate access to hygienic living circumstances, appropriate clothing, food, and medical care. A concern for these individuals and their families is malnourishment. Unfavourable circumstances like subpar housing, homelessness, inadequate food and nutrition insecurity, inadequate child care, limited access to healthcare, unsafe neighbourhoods, and underfunded schools are associated with poverty and hurt the youth of our nation.

• High Levels of Private Debt:- One of the main concerns in academia continues to be the effect of public debt on economic growth. Over the last ten years, public debt has increased on a global, national, and subnational scale, particularly in the wake of the 2008 financial crisis. An overreliance on public debt may impede economic growth and investment.

List of top economies in the world

1. United States ( $ 20.89 trillion)
2. China ( $14.72 trillion)
3. Japan ( $ 5.06 trillion)
4. Germany ( $ 3.85 trillion)
5. United Kingdom ( $ 2.76 trillion)
6. India ( $ 2.66 trillion)
7. France ( $ 2,63 trillion)
8. Italy ( $ 1.89 trillion)
9. Canada ( $ 1.64 trillion)
10. South Korea ( $ 1.64 trillion)

Conclusion

India's economy is expanding at the quickest rate in the world. In terms of the world's largest economies, the nation comes in at number six. It did, however, fall from its fifth place. By 2030, the country should occupy the third spot on the list of countries with the largest economies in the globe. There are still a few problems to be solved, such as poverty, sustainable development, and increased economic growth. Infrastructure, productivity, technical advancement, and other factors all contribute to this GDP increase. The epidemic caused the growth rate to slow down in the midst. It is now anticipated that GDP will expand at a rate of 9% in the upcoming year.

References

1. Union Budget 2023-24
2. Hon’ble Finance Minister Speech: Union Budget
3. Economic Survey 2022-23
4. RBI Bulletin January 2023
5. PIB Press Releases
6. The Hindu Newspaper