India’s economic trajectory continues to capture global attention as it maintains its status as the world’s fastest-growing major economy. With a 5.4% growth in the July-September quarter of 2024, the country has seen a slight deceleration from the previous quarter’s 6.7%. However, sustained growth and strategic initiatives are paving the way for India to overtake Japan as the fourth-largest economy by 2025.
According to the International Monetary Fund (IMF), India’s economy is projected to reach $4.34 trillion by 2025, marginally surpassing Japan’s $4.31 trillion. This achievement will stem from a mix of governmental policies, favourable demographics, and shifting global dynamics. Here are the five major factors driving this remarkable transformation.
- Strategic Government Investments
The Indian government has heavily invested in infrastructure development and public initiatives, laying a strong foundation for sustained economic growth.
Infrastructure Push: Programs like the National Infrastructure Pipeline focus on building robust transportation networks, energy grids, and manufacturing facilities, attracting both domestic and foreign investments.
Atmanirbhar Bharat (Self-Reliant India): This initiative has bolstered local industries by promoting self-reliance and reducing dependence on imports. These measures stimulate job creation and economic expansion across diverse sectors.
- Geopolitical Shifts Favouring India
Global geopolitical shifts have positioned India as a preferred destination for multinational corporations seeking alternatives to China.
China+1 Strategy: Heightened geopolitical tensions, particularly with China, have prompted corporations to diversify their supply chains.
Stability and Workforce: India offers political stability, a democratic framework, and a vast, skilled labor force, making it an attractive hub for manufacturing and service industries.
This shift has led to an increase in foreign direct investment (FDI), strengthening India’s global economic standing.
- Attraction of Global Investments
India’s evolving financial ecosystem continues to draw significant global capital.
Stock Market Growth: The Indian stock market has shown resilience and growth, enticing foreign investors.
Bond Inclusion: The inclusion of Indian government bonds in global indices like the JP Morgan Emerging Markets Index has led to capital inflows and helped lower the fiscal deficit.
These developments have fueled India’s economic expansion, providing the necessary financial stability to support long-term growth.
- Favourable Demographics
India’s young and dynamic population contrasts starkly with Japan’s aging demographic, offering a distinct advantage.
Demographic Dividend: A large, youthful workforce contributes to higher productivity levels and robust consumer demand.
Labor Force Growth: With a significant portion of the population in the working-age group, India benefits from a growing labor force that fuels industrial and service-sector growth.
Japan, on the other hand, faces challenges in maintaining its economic momentum due to its aging population and shrinking workforce.
- Domestic Demand-Driven Growth
India’s vast and growing consumer base continues to be a critical driver of its economic success.
Private Final Consumption Expenditure (PFCE): Accounting for 60.4% of India’s nominal GDP in mid-2024, PFCE reflects strong domestic demand fueled by rising incomes and urbanization.
As the world’s most populous country, India’s domestic consumption creates unparalleled market opportunities, sustaining growth even during global economic downturns.
India’s rise to becoming the world’s fourth-largest economy by 2025 is more than just a statistical milestone; it is a testament to the country’s resilience, strategic foresight, and demographic strengths. From targeted government initiatives to a youthful population and global investments, the factors propelling India’s economic ascent are diverse and robust.
While challenges such as income inequality and infrastructure gaps remain, India’s growth story underscores its potential to shape the global economic landscape. Surpassing Japan will mark not just a numerical achievement but also a symbol of India’s emergence as a key player in the world economy, ready to tackle the challenges of the 21st century.
(With inputs from agencies)
