Anatomy of India’s Growth


    Anatomy of India’s Growth

    Syllabus: GS3/ Indian Economy & Related Issues

    In Context

    • In 2022, India became the 5th largest economy in the world & will soon become the third-largest economy.

    India’s way towards third-largest economy

    • The data sourced from the International Monetary Fund (IMF) show that India is indeed forecast to become the third-largest economy by 2027.
    • Despite India’s economy not growing as fast as it would like to (read 8%-9% per annum), even a more modest growth rate of 6% per annum will be enough for India to overtake Germany and Japan by 2027.

    Significance of India’s Global position

    • India’s GDP has grown by 83% between 2014 and 2023. 
    • This is just a shade lower than the 84% increase achieved by China during this period. The US GDP increased by 54%. 
    • However, barring these three countries, all the other top 10 countries have seen their GDP stagnate or even contract.
      • Of the five countries that India overtook in the 9 years since 2014, the UK’s total GDP has grown by a total of 3%, France’s by 2%, Russia’s by 1%. 
      • Italy’s GDP has not grown at all while Brazil’s GDP has contracted by 15%.

    Key drivers of India’s growth

    • Digital competitiveness:
      • India has a strong digital advantage with its 900 million working-age population having affordable internet access at $2.5/month and 650 million smartphones, all running on the India Digital Stack. 
      • This has led to deeper inclusion and new demand for financial services, consumer goods, healthcare, and education. 
      • The unbanked population has reduced to under 20%, per capita data consumption is among the highest in the world at 17 GB and e-commerce is already at 7%.
    • Technology skills:
      • India has an unparalleled base of technology skills. 
      • Technology services exports crossed $150 billion in FY22 and continue to be relevant in an ever-digitising world. 
      • There are 1,500 global capability centres in India, set up by many of the Fortune 500. With 5 million employees, the sector accounts for 40% of the global technology workforce. 
      • IT exports essentially pays for India’s oil import bill.
    • Transformative public infrastructure investment:
      • India has among the best metro airports in the world and is the third largest air traffic market having grown at a CAGR of 17% pre-Covid. 
      • Investments in airport infrastructure are providing deeper access to remote areas. 
      • Similar investments in ports, railways and highways are creating a world-class transportation network that will enable the creation of an efficient and integrated ecosystem for manufacturing, logistics and exports.
    • Development of a dominant manufacturing base:
      • The Indian government is working to increase the manufacturing sector’s share of GDP from the current 15% 
      • This is being done by introducing multiple programs, such as 
        • The phased manufacturing program and 
        • The production linked incentive scheme and 
        • By reducing and simplifying tax regimes.
      • One of the tailwinds is the diversification of global supply chains away from China, where the median age is 38 and the labour supply continues to get tighter. India’s demographic dividend can step in to fill the gap.
    • Initiatives to reduce external energy dependence:
      • India is working to achieve energy independence by 2047 and reduce the $100 billion spent annually on energy imports by increasing investments in renewable energy and green hydrogen. 
      • The government has set a goal of 500 GW of renewable capacity by 2030, requiring $300 billion in investments. 
      • India is making progress, such as achieving 83% electrification in railways and aiming to reach 100% by 2024.
    • India’s continued dominance as a food basket to the world: 
      • It is the largest producer of milk, pulses, and spices, and second largest in fruits, vegetables, tea, farmed fish, cotton, sugarcane, wheat, and rice, supporting 17.8% of the world’s population. 
    • Resilient banking system:
      • India’s financial institutions have shown resilience with a substantial decrease in NPAs (11% in FY18 to 5% currently) and capital adequacy (17%) to support credit growth.
    • Political stability and innovative public policy:
      • India has a stable political climate which has led to consistency and predictability in policies in the last decade promoting efficiency and agility in doing business.


    • Slowed growth momentum:
      • India’s growth momentum has slowed down considerably between 2014 and 2023 when compared with the 2004-2014 period (when GDP grew by a total of 183%).
    • Greater gaps ahead:
      • Moving from rank 10 to rank 5 was relatively easier because the GDPs were within $1 trillion of each other. 
      • The gap between the third rank and the first two is far greater. 
        • In 2027, India’s GDP will be one-fifth of China’s (short by $20 trillion) and one-sixth of the US’s (short by $26 trillion).
    • Low per capita GDP:
      • One should not forget that these are aggregate numbers for the whole country. 
      • Actual prosperity is better captured by per capita GDP numbers. Here, the gap is way too much. 
      • At $2,600 per annum, India’s per capita GDP is not only the lowest among the top 10 countries but considerably lower than that of the countries it has overtaken, such as $47,000 in the UK or $10,000 in Brazil or $37,000 in Italy.
    • Others: 
      • Threat of rising inequality, Possibility of egregious consequences in trying to achieve growth etc.

    Way ahead

    • India is a strong investment destination due to its diverse economy, growing middle class, and stable political environment. 
    • Its expanding technology sector and economic liberalisation offer many opportunities for businesses and investors. 
    • The nation’s democratic institutions also provide a reliable foundation for long-term investment and hope for a prosperous future.

    Daily Mains Question

    [Q] India is forecasted to become the third-largest economy by 2027. What are the key drivers of India’s economic growth? What are the challenges for India?