India’s GDP Rankings

The International Monetary Fund (IMF) released its GDP estimates and projections for 2024–2030, indicating that India is projected to surpass Japan by 2025 to become the world's fourth-largest economy (in nominal GDP terms), and may become the third-largest economy by 2028. This sparked political discourse, with claims linking the rise in rankings to governance performance, while economic experts cautioned against over-reliance on GDP as a sole indicator of development.

GDP Rankings and Development Metrics: A Need for Nuanced Economic Assessment

1. Understanding GDP Rankings

• Nominal GDP Estimates: Based on IMF's market exchange rate method, India’s GDP is projected to be $4.187 trillion in 2025, marginally higher than Japan's.
  • India becomes 4th largest economy (nominal terms) by 2025.
  • Projected to become 3rd largest by 2028.
• Purchasing Power Parity (PPP) Estimates: Under PPP terms, India has been the 3rd largest economy since 2009. However, it doesn’t show rank improvement till 2030, according to IMF projections.

2. Limitations of GDP as a Metric of Development

• GDP fails to capture:
  • Income inequality
  • Health and education indicators
  • Quality of employment
  • Unpaid domestic and care work (mostly by women)
• GDP Politicisation: Increasing use of GDP rankings in political discourse risks oversimplifying complex socio-economic realities.

3. Methods of GDP Comparison

• Market Exchange Rate (MER) Method:
  • Converts national GDP to USD using current exchange rates.
  • Subject to volatility and misleading time series comparisons.
  • Good for current account-based comparisons (e.g., trade, remittances).
• Purchasing Power Parity (PPP) Method:
  • Adjusts GDP based on cost of living and price level differences.
  • Suitable for comparing living standards and internal purchasing power.
  • Inflates GDP of developing countries due to lower wage and price levels.

4. India’s Economic Reality Behind GDP Size

• Wage Inequality: As per ILO’s India Employment Report 2024:
  • 76% of casual workers in agriculture and 70% in construction earn below the minimum wage.
• Informal Sector Concerns: Large informal economy with:
  • Underemployment
  • Wage suppression
  • Prevalence of unpaid work (especially among women)

5. The Big Economy Illusion: Per Capita GDP and Social Indicators

• India’s Per Capita GDP (2024):
  • $2,711 (nominal), ranks 144th/196 countries.
  • PPP per capita rank: 127th/196.
• Comparative Examples:
  • Vietnam per capita GDP: $4,536
  • Sri Lanka: $4,325
  • Bhutan: $3,913

6. Need for Broader Indicators

• Beyond GDP: Development assessments must include:
  • Human Development Index (HDI)
  • Multidimensional Poverty Index (MPI)
  • Gini Coefficient (for inequality)
  • Labour force participation rates
  • Health and education indices
• Statistical Integrity:
  • Calls for depoliticising GDP numbers and improving transparency in data systems.

Way Forward:

• Institutional Reforms in Statistical Governance:
  • Establish greater autonomy and transparency in data generation.
  • Adhere to globally benchmarked statistical norms.
• Develop Composite Indices:
  • Integrate HDI, inequality metrics, employment quality, and environmental sustainability indicators into economic discourse.
• Policy Focus on Distribution and Inclusion:
  • Increase public investment in health, education, and social protection.
  • Promote formalisation of employment and ensure living wages for all workers.
• Enhance Productivity & Skilling:
  • Bridge the gap between large GDP and low per capita income by boosting productivity, innovation, and inclusive growth.