Chasing a Mirage

India's ascent to become the world's third-largest economy in GDP terms may be inevitable, but unless growth translates into equitable well-being, it risks becoming a hollow milestone

- VIJAYASREE RADHAKRISHNAN

What is the implication of being the world's third-largest economy? Over the past week, discussions around India's ascent to soon overtaking Japan, based on the International Monetary Fund's (IMF) 2024 projections, have received significant media traction.

According to the IMF, India's nominal GDP is expected to reach USD 3.94 trillion, overtaking Japan's USD 3.87 trillion. The NITI Aayog's further assertion that India is already the world's third-largest economy in purchasing power parity (PPP) terms, and is on track to do so in nominal terms rekindles old questions with new urgency: Is aggregate GDP a meaningful measure of development?

At the heart of the issue lies the dominant use of nominal GDP based on market exchange rates as a benchmark for comparing economies. As early as the 1970s, Simon Kuznets warned that "The welfare of a nation can scarcely be inferred from a measure of national income". This is especially relevant in the case of developing economies. For lower-cost economies like India, even PPP-based metrics can artificially inflate GDP.