The great growth sprint: How India must reinvent to become world's second-largest economy

India Today

6 days ago

At the turn of the 20th century, the United States sprinted ahead of the United Kingdom to become the world's largest economy—a position it still holds. A hundred years later, China stunned the world by pulling hundreds of millions out of poverty and displacing Japan to claim the No. 2 spot.Today, India stands at a similar inflection point. The country has already surged past Japan to become the world's third-largest economy (behind China and US) in purchasing power parity (PPP) terms. Recent International Monetary Fund (IMF) data shows that in all probability, India will cross $4.19 trillion in nominal Gross Domestic Product (GDP) in the later half of the current fiscal, overtaking Japan in absolute dollar terms. If these trends continue, it will likely surpass Germany in another 18 months. But that's where the easy gains end—and the real race begins.advertisementTo close the yawning gap with China, whose nominal GDP exceeds $17 trillion, and eventually catch up with the US, now at over $27 trillion, India will have to do what no democracy has ever done: grow at a nominal rate of 8-9 per cent every year for the next 25 years, while remaining socially cohesive, environmentally sustainable and politically stable. That will require more than reforms. It demands reinvention—of India's economic model, its state capacity, global ambition and social contract.For now, India is warming up well. It remains the world's fastest-growing large economy, averaging over 7 per cent real GDP growth in recent years, with a stable macroeconomic framework. Its expanding middle class is powering consumption, its start-ups are reshaping services, and digital governance is being hailed globally. But the leap from $4 trillion to $10 trillion and beyond will not be a linear stretch of what India is already doing. It will need bold shifts in structure, strategy and statecraft.advertisement
The rise of China created space for a global factory. India must now write a different story—not a replica but a reinvention. And the first pillar of that reinvention lies in India's ability to tap into a moment of global flux. Rising wages in China, intensifying geopolitical tensions and the West's 'China + 1' strategy have created a unique but limited opening. Multinational corporations are looking to diversify their supply chains, and India is clearly in the mix. But being in the mix is not enough. India cannot settle for being the back-up option; it must lead with a new narrative—'India Plus Many'.This strategy calls for India to not just be a cost-effective manufacturing base but to become the anchor of a broader economic ecosystem—one that connects value chains through Africa, Southeast Asia, West Asia and Eastern Europe. With strategic initiatives like the India-Middle East-Europe Economic Corridor and the India-UAE trade pact, India is beginning to lay the infrastructure for this vision. But execution will be key. Logistics, customs, compliance norms, power reliability and judicial speed must match the ambition.At home, the reinvention must begin with a sector that remains the biggest paradox in India's economy—agriculture. Employing over 43 per cent of the population but contributing just 16 per cent to the GDP, Indian agriculture has been growing at a modest 3-4 per cent annually. If India is to unlock rural purchasing power, reduce disguised unemployment and rebalance its lopsided development, agriculture must transform—from subsistence to surplus, from grain-centricity to high-value crops, and from fragmented holdings to digital cooperatives.advertisementThis means investing heavily in irrigation, soil health, market linkages, food processing, agri-logistics and climate-resilient practices. India must build farmer-producer organisations at scale, digitise land records, and integrate smallholders into the formal economy. Schemes like eNAM and PM-Kisan are a start, but much more is needed to drive a rural resurgence.In FY25, India's real GDP was around at Rs 185 lakh crore, while nominal GDP stands at Rs 324 lakh crore. The difference reflects inflation's impact—nominal GDP accounts for current prices, whereas real GDP adjusts for inflation to reflect actual economic growth. With real GDP projected to grow at 6.4 per cent and nominal GDP at 9.7 per cent, the gap underscores the role of price level changes in economic measurement, offering a clearer distinction between value-driven growth and price-driven expansion.It also indicates that a significant portion of this increase is due to rising prices rather than increased productivity or output. If inflation remains unchecked, it can erode purchasing power, raise interest rates and complicate fiscal planning. This inflation-growth gap also poses a dilemma for policymakers.advertisementTo sustain long-term economic momentum and achieve India's aspiration of becoming the world's second-largest economy, the focus must shift to productivity-enhancing reforms, efficient public spending, and improving supply-side bottlenecks. Otherwise, high nominal growth without real depth could mask structural weaknesses and lead to overheating or inequality.The urgency is underlined by a stark statistic: the differential between urban and rural GDP per capita is now 1:12.5. This growing gap, despite unprecedented rural spending by the present government, reflects the limits of redistribution without transformation. Direct transfers help cushion poverty, but only structural productivity gains can ensure enduring prosperity. Rural India must become a production powerhouse—not just a consumption recipient.In this context, the rise of a new tier of digital-native, regional entrepreneurs from non-metro India is promising. If supported by infrastructure, credit and skilling, they can be catalysts for inclusive growth. The JAM trinity (Jan Dhan-Aadhaar-Mobile), ONDC (Open Network for Digital Commerce), and Account Aggregator frameworks offer the scaffolding. What's needed now is acceleration and integration—turning scattered pilots into a national movement.advertisementBut while agriculture and rural transformation are foundational, India's economic leap will ultimately be powered by urban manufacturing, services exports, infrastructure, energy security, and innovation. The target must be to double manufacturing's share of GDP from the current ~14 per cent to at least 25 per cent. This requires sustained policy consistency, capital inflows, and deep skilling—especially in clean tech, semiconductors, defence manufacturing and pharmaceuticals.The Production Linked Incentive (PLI) schemes are a step in the right direction, but India must move beyond assembly to high-value innovation. Export competitiveness cannot rely solely on subsidies; it needs a full-stack approach: easier land access, judicial clarity, world-class logistics, and sectoral R&D. By 2035, India must aspire to be a $2 trillion export economy—not just in goods, but in services, education, health tech and entertainment.Energy is another hinge point. No large economy can grow without energy security. India's green transition—solar, wind, green hydrogen, EVs—must be matched by robust grid infrastructure and domestic critical mineral value chains. If the country succeeds, it could turn its climate challenge into a competitive edge.All of this will require a dramatically stronger human capital base. India must increase education spending to at least 6 per cent of GDP and shift focus from input metrics to outcomes—especially in government schools. Vocational training needs to become aspirational, digitally enabled, and demand-aligned. Tier 2 and 3 cities must become new hubs of bilingual, digital-savvy, skilled professionals.advertisementFinancial deepening is equally vital. With private credit penetration still under 60 per cent of GDP and corporate bond markets underdeveloped, India must turbocharge its financial system—by empowering NBFCs (non-banking financial companies), expanding retail participation and enabling large-scale pension and insurance penetration. Mumbai must aim to become a true global financial centre.At the apex of this entire architecture must be a competent, reform-oriented state. India will need to build institutional capacity at scale: faster courts, smarter regulators, empowered municipal governments, and data-driven public service delivery. Reforms must move beyond laws to implementation. The Centre and states must align on investment priorities, tax rationalisation and job creation. Cooperative federalism cannot just be a slogan; it has to be the engine of execution.In parallel, India must wield its geopolitical heft to build economic muscle. It must secure fair trade deals with the EU, US, Australia and East Asian blocs. It must expand its presence in Africa, West Asia, and ASEAN. Institutions like IPEF, BIMSTEC, BRICS, the Quad, and the SCO must become levers of geoeconomic influence, not mere talk shops. India's scale—1.4 billion people, rising incomes, digital governance—gives it leverage, but only if used strategically.Yet, the road ahead is strewn with pitfalls. The risks are real and complex. Geopolitical flashpoints with China or Pakistan could disrupt capital flows. New Delhi's acceptance of Islambad's request for ceasefire after Operation Sindoor was also deep from this philosophy that India wants to focus on building the economic might along with keeping a notorious Pakistan in check.Climate shocks could derail consumption. The middle-income trap looms large; India must find a pathway to productivity-led, inclusive growth at around $10,000 per capita. Western protectionism in digital services or data localisation could limit India's export potential. And fragmented federal politics could slow down reform momentum.But the biggest risk is complacency—the illusion that demographic advantage and incremental growth will somehow carry India forward. The truth is, India's demographic dividend is time-bound. By 2040, the country will begin to age. The next 15 years are not just an opportunity; they are a deadline.India's rise will not look like America's consumer capitalism. It won't mirror China's state-led authoritarianism. It must chart its own path—grounded in self-reliance, competitive markets, empowered citizens, and an inclusive Swadeshi globalism. This means investing in resilience, not just growth; in equity, not just efficiency; and in innovation, not imitation.On May 27, on his visit to Gujarat, Prime Minister Narendra Modi issued a compelling call for 'Swadeshi'—urging citizens to boycott foreign goods and embrace locally made products. He emphasised that building a developed India by 2047 requires collective effort, stating, 'If we have to make this resolve... we will not use any foreign goods.'This appeal aligns with his government's 'Atmanirbhar Bharat' initiative, aiming to reduce dependency on imports and bolster domestic industries. The prime minister's message resonated with attendees, many of whom pledged to promote 'Made in India' products within their communities.Modi is pointing towards same trajectory. This is not a sprint. It is an epic marathon, made harder by global volatility and domestic complexity. But if India gets it right, it could become the world's second-largest economy by mid-century—and, more importantly, a model for democratic development in the 21st century. The baton is now with the policymakers, entrepreneurs, farmers, teachers, engineers and workers. The next chapter of the world economy may well be written in India.Subscribe to India Today MagazineMust Watch