Avoiding the growth mirage

A sustainable march towards 2047 calls for urgent governance and judicial reforms

- M GOVINDA RAO

The release of the World Economic Outlook in April by the International Monetary Fund (IMF) has brought in much rejoicing and enthusiasm among those concerned with India's development. The chief executive officer of NITI Aayog might have jumped the gun when he declared that India has become the fourth-largest economy surpassing Japan, which has also been echoed by the Prime Minister.

The IMF report shows India's gross domestic product (GDP) in 2024 at $3.91 trillion, against Japan's $4.03 trillion, but it is projected to surpass the Japanese GDP by a slender margin in 2025 ($4.197 trillion vs 4.196 trillion). Of course, this is no mean achievement. An average annual growth in the range of 6-7 per cent over the past two decades has helped to make this possible. Despite some setbacks and global uncertainty, the economy has shown remarkable resilience and is poised to surpass Germany before the end of the decade to become the third-largest.

In terms of per capita income, however, India ranks near the bottom in global rankings. It has a long way to go before achieving developed country status by 2047—an ambitious target set by the Prime Minister. At $2,878.4 in nominal per capita GDP, India ranks 141st out of 197 countries; in per capita terms adjusted for purchasing power parity (PPP), it ranks 119th.

The growth rate required to achieve this target ranges from a real rate of 7 to 10 per cent, depending on assumptions about inflation, exchange rate depreciation, and changes in the norm for determining the "developed country" category itself. What is clear, however, is that a "business-as-usual" approach will only confine India to the middle-income trap.