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India Today
a day ago
- Business
- India Today
As upbeat Indian economy closes gap with Japan, Germany, the real test will be at the podium
The arc of India's economic story is finally bending towards the inevitable. A country long seen as a sleeping giant of the global economy is now stirring into a position of hard power—measured not just in dreams and demographics, but in dollar of the latest IMF World Economic Outlook, India's nominal GDP in FY26 stands a chance to become $4.19 trillion and is likely to cross Japan's GDP. India is poised to not only beat Japan but also begin the chase to overtake Germany this gap between India and Germany—the long-reigning industrial behemoth of Europe, currently at $4.74 trillion—is just $550 billion, narrower than it has ever been. The writing is on the wall: India is on track to overtake Germany and become the third-largest economy in the world by nominal GDP within the next 12 to 24 shift is as much about momentum as it is about mathematics. Germany's economy is projected to grow at a sluggish nominal rate of 2.2 per cent in 2025 and 2.5 per cent in 2026, while India is clocking 9.8 per cent nominal growth in 2025 on the back of a 6.8 per cent real GDP increase and roughly 3 per cent inflation. Apply compound interest math to both trajectories, and the projection becomes clearer: by end-2026, India's GDP will likely cross $4.6 trillion to $4.7 trillion while Germany's would rise marginally to $4.86 trillion. If the rupee remains relatively stable against the US dollar—hovering around the Rs 85-87 mark—the tipping point arrives either in the final quarter of 2025 or early 2026. By 2027, India could be nearly $200–$250 billion shift would mark a fundamental reordering of global economic heft. It will be the first time since post-War Bretton Woods institutions began ranking global economies that India enters the top three in nominal GDP—behind only the United States and China. And unlike China, which surged into second place powered by export-led manufacturing and heavy state intervention, India's rise is driven by a cocktail of domestic consumption, digitisation, services exports and a slow but steady resurgence in numbers reveal a deeper story. In 2014, India's nominal GDP was $2 trillion, less than half of Germany's $4.2 trillion. Since then, India has doubled its GDP while Germany has added just $500 billion. In dollar terms, India has added more to global GDP than any European economy in the last decade, and it has done so despite multiple global headwinds: Covid-19, the energy crisis, rising interest rates and the reordering of global supply chains of that growth has been fuelled by domestic factors. India's tax-to-GDP ratio has improved marginally, from 10.1 per cent in FY15 to over 11.3 per cent in FY24. GST collections have stabilised above Rs 1.6 lakh crore per month, with e-invoicing and compliance measures increasing formalisation. The government's capex push—Rs 11.1 lakh crore in FY25, up nearly 27 per cent year on year—is reshaping India's infrastructure backbone. The railways, roads and airports pipeline is not just growing, it is catalysing private the services sector, especially IT and business process outsourcing, continues to deliver. India exported over $325 billion in services in FY24—up from $213 billion in FY19. Software exports alone are touching $180 billion. Combine this with the rise in remittances—over $125 billion annually, the highest in the world—and you have a robust current account buffer, despite being a net importer of by contrast, is facing structural stagnation. Once the world's model exporter, it is now grappling with a declining industrial base, skyrocketing energy costs, and negative demographics. Its population has begun to shrink, with a median age of 47 and a birth rate of just 1.53 per woman. Contrast that with India's median age of 28.4, a fertility rate of 2.0, and an expected workforce addition of 100 million people by growth engine—export-led manufacturing—is faltering. Its trade surplus has fallen from over 8 per cent of GDP in 2015 to just 3.3 per cent in 2024. The war in Ukraine and the resulting cutoff from cheap Russian gas has devastated its energy-intensive industries—chemical plants, auto manufacturing and heavy engineering. BASF is downsizing, Volkswagen is facing electric vehicle competition from China, and industrial production is yet to recover to pre-Covid levels. As of Q1 2025, Germany narrowly avoided a recession, posting just 0.2 per cent real challenge now is not whether it can cross Germany—it almost certainly will. The real question is: can it hold the position? Can it use its growing economic weight to build enduring competitiveness, create good jobs and avoid the middle-income trap?'Crossing Japan and later Germany will be symbolic, but what truly matters is whether this growth empowers India's masses. We must build self-reliant capabilities in manufacturing, reduce our import dependence and ensure that economic expansion translates into jobs and dignity for every Indian,' said Dr Ashwani Mahajan, economist and national co-convenor of the Swadeshi Jagran Manch, an affiliate of the Rashtriya Swayamsevak Sangh (RSS), in a conversation with INDIA pitfalls are many. First is the jobs crisis. While India is growing, the employment elasticity of that growth is worryingly low. The Periodic Labour Force Survey still shows unemployment among urban youth in double digits. The manufacturing sector's contribution to GDP has hovered around 16-17 per cent for the last two decades. The government's Production Linked Incentive (PLI) schemes aim to change that, but so far, only a few sectors—mobile phones, electronics and solar modules—have shown scale India to create the 10 million jobs a year it needs, manufacturing has to expand at a consistent 9-10 per cent clip for the next there's the looming risk of fiscal slippage. India's combined (Centre + states) fiscal deficit remains at around 8.9 per cent of GDP in FY24, with the debt-to-GDP ratio at 82 per cent. Though the Centre is committed to reducing its fiscal deficit to below 4.5 per cent by FY26, any populist deviation—particularly in light of the 2029 general elections—could unnerve investors. India needs to maintain macroeconomic discipline if it wants to keep its sovereign rating above the investment grade India's trade deficit—over $245 billion in FY24—remains a vulnerability. While service exports and remittances help balance the current account, any spike in crude oil prices or capital outflows due to global rate hikes could destabilise the rupee. Even a 5 per cent depreciation could erase gains in nominal GDP rankings, given the dollar-denominated nature of global comparisons. The rupee-dollar equation will be a silent but powerful variable in this rupee, in fact, has depreciated from Rs 62 per dollar in 2014 to Rs 85-87 in 2025. If that trend continues unchecked, even high nominal growth may not reflect in dollar terms. Therefore, the Reserve Bank of India's (RBI) management of external balances, forex reserves (now at $645 billion), and inflation expectations will remain regulatory and institutional bottlenecks also loom large. Despite advances in ease of doing business, issues like contract enforcement, land acquisition and complex tax compliance continue to deter investors. India ranks 163rd in the world in contract enforcement and still struggles to attract global FDI in large-scale manufacturing beyond electronics and automobiles. Germany, for all its problems, still ranks among the world's top five destinations for FDI per capita due to its policy certainty, skilled labour and logistics infrastructure.'India's rise to becoming the third-largest economy must be backed by deep structural reforms. We need to strengthen our fiscal fundamentals, deepen financial inclusion and invest in long-term capital formation. Without strong institutions and sound macroeconomic management, even rapid growth can become fragile,' explains Dr Charan Singh, chairman of the EGROW Foundation and former chairman, Punjab & Sindh truly consolidate its position in the top three, India must invest heavily in human capital. As of 2023, India spends just 2.9 per cent of GDP on education and 2.1 per cent on healthcare—far below the OECD (Organisation for Economic Cooperation and Development) average. Without a robust skills and social safety net ecosystem, the demographic dividend could easily turn into a demographic the upside is enormous. India is already the world's fastest-growing major economy. It has more internet users than the US and EU combined. It is home to 100-plus unicorns, over 800 million UPI users, and a digital public infrastructure that the World Bank calls a 'global public good'. If India can plug its institutional gaps and build trust-based regulation, it could become the growth engine of the this: by 2030, if India sustains an 8 per cent nominal GDP growth rate and the rupee stabilises, its economy will cross $6.8 trillion–$7 trillion. Japan, already behind India at $4.11 trillion and barely growing due to an ageing population and persistent deflationary pressures, is unlikely to regain its position. Germany, growing at 2.5 per cent, would hover around $5.3 trillion. The lead would be decisive—India would not just have overtaken Germany and Japan but would firmly establish itself as the world's third-largest economy and second-largest in Asia, behind only course, these are projections, not inevitabilities. But what is now certain is that India's climb is no longer a dream deferred—it is a milestone imminent. The baton is passing. From Berlin to New Delhi. From the Old World to the New South. The world's third-largest economy could ultimately be a democracy of 1.4 billion, not an industrial giant of 84 million. The race to be number three is hot. The real test will begin at the to India Today MagazineMust Watch
The Print
3 days ago
- Business
- The Print
India's GDP victory over Japan is still a year away. Here's why
Equally clearly, the database presents estimates of India's GDP for fiscal year 2025-26 as $4.187 trillion and Japan's as $4.186 trillion—that is, India's GDP exceeds Japan's by 0.02 per cent in 2025-26. From this, many, if not most, analysts have erroneously concluded that this won't happen until March 2026. Why erroneous? Because it is a fiscal year conclusion, and the 'centre of gravity' of an April-March fiscal year is September. So, it is likely that the NITI Aayog CEO, in making his hasty conclusion, was wrong by only four months. As it happens, Subrahmanyam was hasty by approximately a year. Critics of the government's assertion make two points, one relevant and the other 'noisy'. The relevant point is that the IMF World Economic Outlook (WEO) database clearly shows that for the fiscal year 2024-25 (ending in March 2025), India's GDP was $3.9 trillion while Japan's was $4.0 trillion—that is, Japan was 2.6 per cent ahead. Fortunately, both Japan and India have the same fiscal year—April-March—hence adjustments to WEO data are not needed. There has been much discussion about the assertions made by BVR Subrahmanyam, the CEO of NITI Aayog, India's only official think tank. Speaking at a press conference following the 10th NITI Aayog Governing Council Meeting chaired by Prime Minister Narendra Modi and presumably attended by senior bureaucrats, Subrahmanyam said that 'as I speak', India has overtaken Japan in current dollar GDP. Note that his conclusion and inference pertains to current dollar GDP, and we have to contend with the conversion from rupees to US dollars, and from Japanese yen to US dollars. India and Japan numbers First, let us look at the Indian estimate. Data just released by the Ministry of Statistics and Programme Implementation (MoSPI) on Friday shows that India's GDP in current prices for January-March 2025 quarter was Rs 88.17 trillion, or annualised Rs 352.7 trillion. On 23 May, the last market day before Subrahmanyam's assertion, the exchange rate was Rs 85.4/$—that is, current GDP in March 2025 was 352.7/85.4 or $4.13 trillion. Indian nominal GDP is growing by about 10 per cent a year. So, by March 2026, we should expect current India GDP to reach $4.54 trillion. Now we examine the fortunes of Japan's GDP. The seasonally adjusted quarterly estimate of Japan's GDP is 624.9 trillion yen for Q1 of 2025. On 23 May, the exchange rate was 142.6 yen/$; hence Japan's GDP in March 2025 was $4.38 trillion, some 6.1 per cent ahead of India's GDP on the same date. Given that exchange rates change every day, we need to decide as to what exchange rate we should use. Amongst many, we can use a calendar year estimate, a quarterly estimate or a 23 May estimate. But no matter which one we use, it will be wrong because exchange rates do not remain constant, and the future is not asked to see, que sera sera. All of us are concerned with the 23 May estimate, hence the discussion and this note. Japan's nominal GDP growth has averaged 3.4 per cent for the last three years. Assuming this to be the average for 2025-26, the estimate for March 2026 is $4.53 trillion GDP (as 4.38*1.034). So it will be sometime in March 2027 that India's GDP will exceed Japan's in current dollars. Again, que sera sera, the conclusion will depend on what happens to exchange rates. Changes in exchange rates affect nominal dollar GDP calculations. Assume in March 2027 all estimates come true except the $ yen exchange rate changes from 142.7 to 135 (the yen has become stronger by 5.7 per cent), then Japan's GDP will be 5.7 per cent higher and the day of decision will be delayed beyond March 2027. How do we interpret the dash to conclusion by the CEO? As a sports junkie, I recall countless occasions over the last 50 years when a sprinter looked over his shoulder to see his competitor – and lost the race. Also read: GDP data revisions—why India still struggles with sharp variations Lesson for India—good data, bad data What do we learn from his data-heavy exercise? First, haste makes wrong. Second, and more importantly, what difference will it make to the price of tomatoes (as I am often inclined to say) if India GDP is equal to Japan GDP? Third, and most important, and as pointed out by many, what matters is equivalence in per capita GDP, and on this, we are decades away—whether measured in current $ or PPP $ or constant dollars. One final comment. It is unfortunate that in the last ten years, most of the decision-making bureaucracy has lost respect for the data. The bad quality household consumer expenditure data for 2017-18 has still not been released. Several analyses of the 2017-18 data (see the 2022 IMF Working Paper authored by me and my colleagues Karan Bhasin and Arvind Virmani, and several other documents and books) conclude that the 2017-18 data was of such bad quality that the world, and India, needed to examine why it was of such bad quality. By not releasing that data, we have created an atmosphere where it is 'open sesame' for domestic and international scholars to question good Indian data. Food for thought for Niti and decision-making bureaucrats. Surjit S Bhalla is a former Executive Director at the International Monetary Fund. He tweets @surjitbhalla. Views are personal. (Edited by Aamaan Alam Khan)
Forbes
01-05-2025
- Business
- Forbes
Why US Stocks Could Continue To Trail International Equities
Background stock market and finance economic. getty A commonly heard quip of economists throughout the post-war era has been, 'When America sneezes, the rest of the world catches cold.' This refrain also applied to the 2008 Financial Crisis and the Covid-19 pandemic, when the U.S. economy and stock market far outperformed its international peers (see chart below). This adage, however, does not apply to the current trade war. During the first 16 weeks of this year, the U.S. stock market underperformed international markets by the widest margin since 1993, according to the Financial Times. The MSCI USA index lost 11 percent, while the MSCI international index rose 4 percent in dollar terms. An 8 percent weakening of the dollar against a basket of six key currencies including the euro and yen was a contributing factor. US versus International Equities MSCI Bloomberg The U.S. stock market's underperformance is widely attributed to investors' expectations that President Trump's tariff blitz will contribute both to a slowing of the U.S. economy and to higher U.S. prices. This reflects a sea-change in expectations from the start of this year, when investors anticipated that the U.S. economy would be bolstered by tax cuts and deregulation. The shift in expectations is apparent in the IMF World Economic Outlook published last month. The IMF's projections now call for U.S. real GDP growth to slow from 2.8 percent in 2024 to 1.8 percent this year, down from 2.2 percent in the prior forecast in October. The IMF's projected slowdown for the U.S. is the largest for any advanced economy, and it is expected to be accompanied by a surge in U.S. inflation to 3 percent, a full percentage-point increase from the January forecast. If so, this outcome would indicate that the massive tariffs President Trump is contemplating would inflict greater damage on the U.S. economy than on other industrial economies. This begs the issue of whether the U.S. economy might prove resilient to tariff increases, just as it did to Fed rate hikes in 2022-2023. First quarter GDP results released by the Bureau of Economic Analysis showed how the economy fared just before President Donald Trump's 'Liberation Day' announcement on April 2. During the quarter, real GDP contracted at a 0.3 percent annual rate, which heavily influenced by the response of U.S. businesses to pending tariff hikes.. The main factor contributing to the decline in real GDP was a surge in imports of 41 percent at an annual rate, as businesses built up inventories in anticipation of higher import prices due to tariffs. By comparison, exports rose at only a 1.8 percent rate. The steep plunge in consumer confidence readings this year was accompanied by a slowing in consumer spending to a 1.8 percent annual rate from 4 percent in the fourth quarter of last year. However, business fixed investment surged at a 22.5 percent rate, as companies appeared to be front-running tariffs according to the Wall Street Journal. Overall, domestic demand rose at a 3 percent annual rate. The full brunt of the tariff hikes is likely to be felt in the next two-three quarters, as supply-chain shortages take hold. The longer the trade war persists, the greater is the risk that a recession could unfold at some point, which is not yet reflected in stock prices. Meanwhile, the U.S. stock market has stabilized following President Trump's announcement on April 9 that reciprocal tariffs would be suspended for 90 days for U.S. trading partners. The principal exception is China, where the tariff rate was boosted to 145 percent in response to Chinese retaliation. Looking ahead, the case for international markets to outperform the U.S. market hinges on three considerations. One is that international equity markets, and especially European markets, are considerably cheaper than the U.S. stock market even after taking into account the greater weight in technology stocks in the U.S. For example, the average P/E ratio for international stocks over the past decade was more than 20% lower than the U.S. average. By comparison, the current discount for European equities is more than 35 percent according to Bloomberg. Second, President Trump's stance on national security issues and on tariffs has been a catalyst for European countries to boost defense spending and to undertake other initiatives to bolster their economies. Germany's stock market received a boost when newly elected Chancellor Friedrich Merz won lawmakers' approval in March for an ambitious plan to loosen the nation's strict debt rules for higher defense spending and to set up a large fund to finance public infrastructure. The stock markets for Germany, Poland and Spain, in turn, have posted double-digit returns so far this year. Third, the backlash to President Trump's tariffs and national security stance has also resulted in a marked decline in the dollar this year, even though interest rate differentials have widened in favor of the dollar. This has raised the specter that there could be crisis of confidence in the dollar at some point, as I have discussed previously. Meanwhile, the status of the U.S. as a safe haven is being questioned. Finally, in the event the trade war leads to a rupture in global trade patterns, equity market correlations could decline after they rose steadily during the era of globalization. If so, investing in international equities should provide greater diversification benefits than was evident in the past 25 years.
Indian Express
28-04-2025
- Business
- Indian Express
Top 10 largest economies in the world (2025): India remains fastest-growing — find out its global rank
World's Top 10 Economies and GDP Ranking 2025: The global economy appears to have stabilised, showing steady and well above recession levels, yet underwhelming growth rates, amid escalating trade-war tensions fuelled by US-imposed tariffs and global uncertainty. In the recently released IMF World Economic Outlook April 2025, the global growth forecast has been marked downwards by 0.5 percentage points to 2.8 per cent for 2025 and by 0.3 percentage points to 3 per cent for 2026 compared to this year's January edition. The report indicates that economic growth in the United States, the world's largest economy, is projected to slow to 1.8 per cent, reflecting a decrease of 0.9 percentage points from the earlier year's forecast, primarily driven by increased policy uncertainty, ongoing trade tensions, and weakening demand momentum. The growth of the euro area, currently at 0.8 per cent, is expected to decelerate by 0.2 percentage points, whereas the emerging markets and developing economies are anticipated to experience a slowdown, with a projected growth rate of 3.7 per cent in 2025. Looking ahead, the ongoing trade conflict has the potential to further weaken global economic growth prospects and negatively impact the international financial system, according to the IMF. (Source: World Economic Outlook, April 2025) Top 10 largest economies in the world by GDP (Current Prices) in 2025 Gross Domestic Product (GDP) is a significant metric for determining the total value of a country's economy, calculated based on the expenditure method, which entails aggregating expenditure on fresh consumer goods, new investments, government outlays, and the net worth of exports. Below are the top ten largest economies in the world, according to the current GDP (current prices), as of April 2025. Rank Country GDP (USD) 2025 Projected Real GDP (% Change) GDP Per Capita (Current Prices) (USD) 1 United States of America $30.34 trillion 2.70% 30.51 thousand 2 China $19.53 trillion 4.60% 19.23 thousand 3 Germany $4.92 trillion 0.80% 4.74 thousand 4 India $4.39 trillion 1.10% 4.19 thousand 5 Japan $4.27 trillion 6.50% 4.19 thousand 6 United Kingdom $3.73 trillion 1.60% 3.84 thousand 7 France $3.28 trillion 0.80% 3.21 thousand 8 Italy $2.46 trillion 0.70% 2.42 thousand 9 Canada $2.33 trillion 2.00% 2.23 thousand 10 Brazil $2.31 trillion 2.20% 2.13 thousand Source: IMF's World Economic Outlook, April 2025 Note: While the majority of data has been accessed from the Forbes listicle, the GDP per capita (Current Prices) has been sourced from the IMF, as of April 28. 2025. India's global economic outlook explained: India, which is anticipated to surpass Germany and Japan to become the third-largest economy by 2030, has seen its economic growth forecast revised down from 6.5% to 6.2% for 2025 and from 6.3% to 6.2% for 2026, as reported in the April 2025 edition of the IMF's World Economic Outlook. 'For India, the growth outlook is relatively more stable at 6.2% in 2025, supported by private consumption, particularly in rural areas,' the report further noted. Presently positioned as the fourth-largest economy globally, on par with Japan, the IMF forecasts India to be the fastest-growing major economy over the next two years, maintaining a significant advantage over both global and regional competitors despite the adjustment in growth projections. The Reserve Bank of India's estimates suggested that the real GDP growth for the fiscal year 2025-26 is now projected at 6.5%, down from the previously expected 6.7%.
Business Recorder
23-04-2025
- Business
- Business Recorder
World could boost growth by reducing trade doubt: IMF
WASHINGTON: Policymakers should find a way to reduce the uncertainty over trade policy kicked up by Donald Trump's tariff plans in order to boost global growth, the International Monetary Fund's chief economist said in an interview. 'The uncertainty in trade policy, and in policy generally right now, is a big drag on global activity,' Pierre-Olivier Gourinchas told AFP ahead of Tuesday's publication of the IMF World Economic Outlook report. 'And the sooner we can lift it, the better off everyone will be,' he said, adding: 'Bringing back stability, clarity, predictability to the trading system is the first order of business.' In the updated outlook published as global financial leaders gather for the World Bank and IMF Spring Meetings in Washington, the Fund sees global growth cooling to 2.8 percent this year, a 0.5 percentage-point cut from its last forecast in January. Global growth is then forecast to hit 3.0 percent in 2026, a 0.3 percentage-point markdown from January. The IMF now expects 3.0 percent inflation this year, effectively stalling progress towards the US Federal Reserve's two percent long-term inflation target. Higher inflation 'will, of course, have implications for what the central bank will need to be doing,' Gourinchas said. If inflation developments prove to be persistent, the Fed 'may have to delay easing monetary policy, or they may even have to start looking to increase and tighten the monetary policy rate,' he added. The impact of tariffs is also 'quite significant' for China, Gourinchas said, adding that the IMF expects the levies to constrain growth by around 1.3 percentage points, counteracted somewhat by the fiscal measures Beijing introduced to prop up the economy last year. As a result, the IMF has trimmed China's growth forecast by 0.6 percentage points, and now sees growth of just 4.0 percent this year, down sharply from the 5.0 percent growth seen in 2024.
