Has India really overtaken Japan to become the world’s 4th largest economy?

In a recent statement, BVR Subrahmanyam, the head of India’s public policy think tank Niti Aayog, asserted that India has overtaken Japan to become the world’s fourth-largest economy, describing the nation as a $4 trillion economic powerhouse. This announcement ignited enthusiasm across India, but experts have pointed out that the celebrations may be premature, as the assertion may be based on projections rather than current economic data.

According to Subrahmanyam, India is set to surpass Germany as well, establishing its position just behind the US and China in three years. However, analysts caution that while the numbers are impressive, there are deeper socioeconomic issues that cannot be overlooked. The projections put forth by the International Monetary Fund (IMF) indicate that India is expected to overtake Japan by 2026 and Germany shortly thereafter, but it is crucial to note that the claim of India already being the fourth-largest economy does not align with present data.

Currently, India is still ranked as the fifth-largest economy globally, with a GDP of approximately $3.9 trillion, compared to Japan’s $4.02 trillion. The announcement, therefore, may reflect anticipated growth rather than actual standings. In the wake of these remarks, economist Arvind Virmani, a member of Niti Aayog, clarified that India is likely on track to become the fourth-largest economy by the financial year 2025-26. This means there is still a wait until the data for 2025 is released, which could confirm Subrahmanyam’s projections.

The IMF has forecasted India’s GDP to potentially reach $4.187 trillion by the 2026 financial year, edging just ahead of Japan’s expected GDP of $4.186 trillion. However, this slight margin emphasizes the uncertainty surrounding these projections, particularly with factors such as currency fluctuations and global economic trends. As explained by Rajeswari Sengupta, an economist from the Indira Gandhi Institute of Development Research, India’s anticipated growth should not obscure the ongoing systemic issues like poverty, healthcare, and education that afflict a large portion of its population.

It is important to recognize that while the GDP growth narrative is compelling, it is not the sole indicator of economic health or prosperity. The gap in per capita income between India and Japan remains substantial, with projections showing India’s per capita nominal GDP at around $2,880 by 2025, compared to Japan’s staggering $33,960. Even when adjusted for purchasing power parity, which tends to reduce disparities, India’s figures at $11,228 still lag considerably behind Japan’s $52,712.

This underscores a critical point: while the overall size of India’s economy is growing, the living standards for many of its citizens are still low. Alicia Garcia-Herrero, chief economist at Natixis, emphasized that merely increasing the size of the GDP does not guarantee improvements in quality of life; priority must be given to income distribution and wealth equality.

As such, the discussion surrounding India’s potential to overtake Japan serves as a reminder of the two faces of economic growth. On one side, there is the narrative of robust GDP growth and aspirations of becoming a global superpower; on the other, the stark realities of widespread poverty, inequality, and underserved populations paint a more complex picture. While many celebrate India’s economic ambitions, it is crucial to maintain focus on the constituents that shape a nation’s true wealth—education, healthcare, and equitable growth.

Ultimately, analysts suggest a cautious approach when interpreting economic data and projections. India’s situation is not merely a reflection of its growth but also of Japan’s stagnation due to its declining productivity and aged population. Between the mid-1990s and 2023, Japan’s nominal GDP fell from $5.3 trillion to $4.2 trillion, negatively influencing its standing against emerging economies like India.

In summary, while the potential for India to emerge as a significant economic force on the global stage is palpable, the path ahead is fraught with challenges that require diligent attention. Instead of purely focusing on surpassing Japan, the focus should shift to improving the quality of growth, tackling socioeconomic disparities, and ensuring that the nation’s wealth is shared among its vast population. Engaging with these issues will allow India not just to showcase impressive economic figures, but to offer a higher quality of life for its citizens, which is the ultimate measure of a thriving economy.

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