Policy Shifts Make India World’s 4th Largest Economy

India’s remarkable ascent in the global economic landscape is notable, particularly as it transitions from being the 11th largest economy in 2014 to achieving the title of the fourth-largest economy by 2025, with an impressive nominal GDP of $4.19 trillion. This transformative journey reflects not only India’s resilience but also strategic policy shifts that have significantly bolstered its economic performance.

### Growth Trajectory and Competitiveness

In the last decade, India’s economic growth has consistently outpaced global averages, achieving an inflation-adjusted growth rate of around 6% compared to the world’s average of 2.8%. Excluding the pandemic-impacted year of 2020, India’s growth rate surged to an average of 7.15%, illustrating a robust recovery and sustained expansion. Between 2014 and 2024, India’s average economic growth rate stands at 6.86%.

According to the International Institute for Management Development (IMD), India now ranks 39th in the world competitiveness index for 2023, a substantial leap from 71st in 2014-15. This improvement signifies India’s commitment to enhancing its business environment and attracting global investments.

### Sectoral Contributions to Growth

The substantial growth of the Indian economy can be attributed to various sectors, including manufacturing, electricity generation, and infrastructure development such as roads and railways. The compound annual growth rate (CAGR) in these sectors from 2014 to 2024 has been around 21%—a notable increase from 18% during the preceding decade.

This targeted focus on infrastructure and industrial growth, combined with increased economic activity, has been a critical driver of India’s ascent. The Indian government has prioritized fiscal policies that support the development of complementary sectors crucial for national economic stability.

### Fiscal Federalism and Decentralization

Another significant policy shift has been in fiscal federalism—the distribution of financial power to state and local governments. Since 2014, there has been an increased decentralization of financial resources, empowering state governments and local bodies to provide essential public services effectively.

The Union government has raised the states’ share of net tax revenues to 42%, significantly up from 32%, in line with recommendations from the 14th and 15th Central Finance Commissions. This change aims to enhance financial independence and improve service delivery at the grassroots level.

From 2015-16 to 2019-2020, the Union government allocated ₹2.87 lakh crore for urban local bodies and Panchayati Raj Institutions (PRIs), a dramatic increase compared to the previous five years. Total grants to local bodies are predicted to rise to ₹5.26 lakh crore during the period from 2020-21 to 2025-26.

These measures underline India’s approach to improving public service delivery, thereby spurring economic growth from a decentralized foundation.

### The Impact of GST

The introduction of the Goods and Services Tax (GST) in 2017 marked a historic tax reform aimed at unifying the country under a single tax regime. Dubbed “one nation, one tax,” GST simplified business processes and has since played a vital role in enhancing economic activities.

By streamlining the tax framework, GST has been pivotal in formalizing the economy, boosting compliance and expanding the tax base, which in turn fosters greater investment opportunities.

### Future Growth Expectations

Looking ahead, India is projected to maintain its status as the world’s fastest-growing major economy, expected to record over 6% growth for the next two years. Reports indicate that India’s GDP could reach approximately $5.58 trillion by 2028, surpassing Germany to become the third-largest economy globally.

To facilitate this growth, substantial investments in urban infrastructure are deemed essential. This will not only support economic activities but will also enhance the quality of life for its citizens, providing the necessary framework for sustainable growth.

### Conclusion: A Bright Economic Future

India’s journey to becoming the fourth-largest economy in the world is underpinned by strategic policy shifts and an unwavering commitment to fostering growth across various sectors. The country’s economic transformation reflects a holistic approach, incorporating fiscal decentralization, comprehensive tax reforms, and active governance that prioritizes citizen welfare.

As posited by Morgan Stanley, India is on track to emerge as the world’s third-largest economy by 2028. The transformational shifts in policy and governance position India as a robust contender in the global economic arena, making it one of the most attractive consumer markets while contributing increasing shares to global output.

The road ahead appears promising, and India is steadily carving its place in the world, shaping a narrative of resilience, growth, and opportunity.

### Final Thoughts

In summary, as India continues its economic journey, the interplay of policy, growth dynamics, and sectoral contributions is crucial for understanding its current position and future trajectory in the global economy. With the right investments and strategic initiatives, India is well-poised to further solidify its status as a leading global economic powerhouse.

Source link