Under the resolute leadership of Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman envisions India ascending to the world’s third-largest economy by 2027, surpassing Japan and Germany. Amid global challenges, India’s robust 7% GDP growth and strategic initiatives in the “Blue economy” exhibit its resilience. The transformative India-Middle East-Europe Connectivity Corridor (IMEC) fosters economic unity. Leveraging its demographic advantage with a young population, India anticipates sustained growth, eclipsing advanced economies. Projections affirm its trajectory as a global economic powerhouse, marking a shift towards major manufacturing and digital market advancements. Finance Minister’s vision, under Prime Minister Modi’s stewardship, aligns with comprehensive financial policies, positioning India as a pivotal player in emerging global supply chains.
India’s Finance Minister, Nirmala Sitharaman, observed on November 27 that the country is poised to become the world’s third-largest economy by 2027, surpassing both Japan and Germany. The IMF projects Asia and the Pacific to drive two-thirds of global growth in 2023 alone, with India contributing a significant one-sixth of global output growth both this year and next. In terms of market exchange rates, India currently holds the position of the world’s fifth-largest economy, ranking third when measured by purchasing power parity.
Speaking at the Indo-Pacific Regional Dialogue, Finance Minister Sitharaman highlighted India’s projected economic growth of almost 7%, exceeding that of all major economies despite global challenges. The three-day long conclave in New Delhi between 15 and 17 November, brought together prominent experts from across the globe alongside senior officials from the Indian Armed Forces and government, who delved into diverse sub-topics under the overarching theme of “Geopolitical Impacts upon Indo-Pacific Maritime Trade and Connectivity.” Characterising the Indo-Pacific as economically the most dynamic region in the world, Sitharaman observed that it represented a staggering 60% of global GDP and nearly half of global merchandise trade.
Elaborating on India’s expanding economic profile, Sitharaman was confident that even if the cautious yardsticks of the IMF were taken, India would become the world’s third-largest economy by 2027, surpassing both Japan and Germany, as its GDP soars past $5 trillion. By 2047, India aims to achieve the status of a developed nation.
India’s “Blue economy,” embracing a vast maritime network and diverse ocean resources that represents a significant 4% of the nation’s GDP and holds immense potential for further growth. With 9 coastal states and 4 Union Territories, 12 major ports and 200 smaller ones lining its coastline, and a network of navigable waterways, India is strategically positioned for international and domestic trade. UNCTAD recognized India as the 2nd largest exporter of ocean-based goods and services among developing countries in 2020. According to the 2023 World Bank Logistics Performance Index report, the processing time of goods in Indian ports has been significantly reduced, standing at a mere 0.9 days. This impressive performance surpasses that of established maritime hubs like Singapore, the UAE, Germany, the USA, Australia, Russia, and South Africa. It is no surprise, therefore, that between 2014 and 2023, India’s ranking for international shipments has risen from 44 to 22, demonstrating the country’s growing prominence in global trade. The “Blue economy” clearly presents a sea of exciting opportunities for India’s future.
The Finance Minister outlined several ambitious plans for the future of India’s blue economy. To bolster maritime trade, a “Marine Cargo Pool” has been established with the backing of insurance authorities and domestic companies. This will provide crucial support to shipping operations and enhance the country’s resilience against international sanctions. Additionally, India is establishing its own Protection and Indemnity (P&I) entity, granting greater autonomy and safeguarding coastal and inland shipping. Furthermore, the National Monetisation Pipeline (NMP) has identified 31 projects across 9 major ports for investment, with a projected budget of 14,483 crore rupees (1.74 billion USD) by 2025. These initiatives collectively demonstrate a strong commitment to modernizing and expanding India’s maritime sector.
Hailing the India-Middle East-Europe Connectivity Corridor (IMEC) as a game-changer, Finance Minister Sitharaman highlighted its potential to benefit all participating nations. IMEC, signed during the G-20 Summit in New Delhi, promises to revolutionize transportation, reduce costs, and foster economic unity. This ambitious project goes beyond traditional infrastructure, encompassing not only shipping lanes, railways, and highways, but also cutting-edge technologies like electricity cables, high-speed data networks, and even a hydrogen pipeline. This multi-dimensional approach aims to create a reliable and cost-effective transit system, supplementing existing routes and facilitating seamless trade and connectivity across vast regions. IMEC represents a powerful step towards the shared vision of an integrated South Asia, West Asia, Europe, and Middle East. By fostering economic cooperation and reducing logistical barriers, this ambitious project has the potential to create jobs, drive economic growth, and contribute to a cleaner and more sustainable future.
Earlier in September, Michael D Patra, Reserve Bank Deputy Governor, speaking at the 16th SEACEN-BIS High-Level Seminar in Cambodia, observed that India is poised to become a USD 5 trillion economy by 2027, propelling it to the third largest position in the world by market exchange rates. He attributed this projected surge to both India’s demographic advantage and the rapid development of its financial sector.
As most advanced economies grapple with economic stagnation, supply chain disruptions, inflation surges, and demographic challenges, India shines as a beacon of growth, recognized as the fastest-growing major economy by leading international institutions like the IMF. There are usually two perspectives when it comes to working out relative size of an economy. Market Exchange Rate (MER) considers the value of a country’s currency based on global markets. From this perspective, India surpassed the UK in 2021, becoming the 5th largest economy. By 2027, projections suggest it will overtake Japan and Germany, reaching the 3rd position. However, even then, the US economy would still be nearly six times larger. Purchasing Power Parity (PPP) focuses on the domestic purchasing power of each currency. In this view, India is already the 3rd largest economy, significantly ahead of Japan and Germany. Moreover, by 2027, the US economy would be only about 1.7 times larger than India’s in PPP terms. Maintaining a real growth rate of 6-7% within the next few decades could potentially allow India to catch up to the US economy, even with the disparity in MER.
In the 21st century, India stands apart from other major economies with a unique demographic advantage. Its large and young population presents a significant opportunity for economic growth. Recent data indicates that India has already surpassed China in total population, making it home to a staggering 17.8% of the world’s inhabitants – more than one-sixth of the global community. Looking ahead, India is projected to overtake China in terms of working-age population by 2030. This advantage is expected to persist throughout the remaining decades of the century, with the gap between India and its peers widening steadily. Notably, India will maintain the lowest ratio of elderly dependents compared to other major economies throughout this period, paving the way for higher saving and investment rates, further fueling its economic engine.
In September, Geeta Gopinath, Deputy Managing Director of the IMF, projected India’s economic growth to exceed 6% for the current fiscal year, driven primarily by public investment and robust consumption spending. India’s robust economic growth is expected to continue over the next three years, according to a report by Standard &Poor Global Ratings. This trajectory positions India to become the world’s third-largest economy by 2030, surpassing Germany and Japan. Currently the fifth-largest economy globally, India is projected to grow by 6.4% in the current fiscal year. This growth is expected to accelerate to 7% by fiscal 2027, significantly outpacing China’s projected slowdown to 4.6% by 2026. This significant gap in growth rates highlights India’s potential for sustained economic leadership. India’s economy, as measured by gross domestic product (GDP), grew by a surprising 7.6% in the second quarter of fiscal 2023-24, exceeding expectations. This strong performance led several brokerages to revise their full-year GDP growth forecasts upwards.
India is on the cusp of becoming a global economic powerhouse. This presents an immense opportunity for the nation to become a major manufacturing hub. Transforming from a service-driven economy to a manufacturing giant will require a robust logistics infrastructure. Additionally, unlocking the potential of its workforce through skill development and increased female participation is crucial to reaping the benefits of its demographic dividend.The booming domestic digital market offers further fuel for growth in high-growth startups, particularly in financial and consumer technology. Finally, infrastructure, investment, and innovation position India for significant expansion in the automotive sector. India’s economic prospects certainly look bright, with the potential for sustained growth across diverse sectors.
In the radiant era under Prime Minister Narendra Modi’s steadfast leadership and guided by Finance Minister Nirmala Sitharaman’s vision, India charts an extraordinary trajectory towards becoming the world’s third-largest economy by 2027. Despite global challenges, India’s resilient 7% GDP growth and strategic strides in the “Blue economy” showcase its economic prowess. The transformative India-Middle East-Europe Connectivity Corridor (IMEC) propels economic unity, while ambitious plans for the blue economy underscore commitment. Recognized as the second-largest exporter of ocean-based goods, India’s maritime prominence surges, reflected in reduced port processing times and a remarkable rise in global trade rankings. Finance Minister Sitharaman’s emphasis on India becoming a central player in emerging supply chains, backed by new financial policies across government sectors, positions the nation as a formidable global economic powerhouse with vast opportunities beckoning across sectors.
*The author is a leading analyst of India’s Foreign Affairs with specialisation in Arab Gulf States and Islam. He has a keen interest in the Political Economy of India.
Originally published: Financial Post, December 14, 2023
Posted on academics4namo with the authorization of the author.