India to overtake Japan to become 3rd largest economy in 2025

India will this year overtake the UK to become the world’s fifth biggest economy, and is poised to surpass Japan to be the third largest in 2025, IHS Markit said in a report Friday.

Following the re-election of the BJP government led by PrimeMinister Narendra Modi to a second term of office in May 2019, the FinanceMinistry has published an economic roadmap to 2025 in its latest annualEconomic Survey.

   

The key goal is to transform India from a USD 3 trillioneconomy in 2019 to a USD 5 trillion economy by 2025, lifting India into theranks of the world’s upper-middle-income countries, it said.

“IHS Markit estimates that India will overtake the UKto become the world’s fifth largest economy in 2019, and forecasts that IndianGDP will reach USD 5.9 trillion in 2025, surpassing Japanese GDP to make Indiathe world’s third-largest economy,” the report said.

Also, the size of the Indian consumer market is forecast toincrease from USD 1.9 trillion in 2019 to USD 3.6 trillion by 2025.

“As India continues to ascend in the rankings of theworld’s largest economies, its contribution to global GDP growth momentum willalso increase. As the size of its consumer market continues to grow at a rapidpace, India will also play an increasingly important role as one of theAsia-Pacific region’s major economic growth engines, helping to drive Asianregional trade and investment flows,” IHS said.

But to achieve this, the country’s new economic roadmaphighlights the importance of creating a virtuous cycle of investment, savingsand exports in order to sustain rapid economic growth over the next five years.

The role of investment is seen as a critical enabler forinnovation, rapid productivity growth and new technology, helping to boost jobsgrowth. The roadmap described in the latest Economic Survey highlights theimportance of creating a favourable ecosystem for private investment,particularly in the new economy.

IHS said accelerating the development of new economystartups and growing new unicorns is a critical strategy for creatingvalue-added and skilled jobs growth.

“Despite significant achievements in new infrastructureconstruction during PM Modi’s first term, rapid infrastructure development inkey sectors such as transport and power infrastructure remain importantpriorities, as well as reducing the regulatory burden of government redtape,” it said.

India was ranked 77 out of 190 countries that are includedon the World Bank’s Ease of Doing Business Index for 2019.

The Economic Survey highlights the importance of reforms tothe legal system, citing the World Bank’s Ease of Doing Business Report, whichranks India 163rd in the world for contract enforcement.

It recommends the hiring of additional judges to rapidlyreduce the number of unfilled vacancies and clear long backlogs in the courtsystem.

Another important reform that is highlighted as a priorityin the Economic Survey is changing labour market law to remove restrictivelabour regulation.

“However, although India still lags behind other largeemerging markets such as Turkey (43rd), China (46th) and Mexico (54th) on thisranking, India has made remarkable progress in improving its ranking comparedwith its ranking at 142nd out of 189 countries in the Ease of Doing Businessranking for 2015,” IHS said.

Moreover, the increase in India’s total population between2015 and 2050 is projected at around 350 million persons, creating significantfiscal challenges for the government in order to deliver adequate physicalinfrastructures such as electricity, sanitation, affordable housing and publictransport.

At the same time, India’s population growth rate is alsoprojected to slow rapidly over the next two decades, resulting in gradualageing of the population, bringing additional fiscal challenges relating tohealthcare, pensions and social welfare for senior citizens.

“Despite the wide range of economic challenges facingthe nation, the economic outlook looks positive for the second term of theModi-led BJP government, with GDP growth forecast by IHS Markit to averagearound 7 per cent per year over the 2019-2023 period,” it added.

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