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India set to overtake Germany as 3rd largest economy by 2027

IMF has raised India's economic growth forecast to 6.8% in 2024-25

India will grow at the fastest pace to overtake Japan to become the fourth largest economy in the world by 2025 and overtake Germany to become the third largest by 2027, the International Monetary Fund said.

The IMF, which recently released its World Economic Outlook for April 2024, has again applauded India for strong economic numbers using the yardstick of GDP in current US dollars. The IMF has raised India's economic growth forecast to 6.8 per cent in 2024-25 and 6.5 per cent in 2025-26. The IMF’s growth projections are up from its previous forecast of 6.7 per cent for 2024.

India is currently ranked as the world's fifth-largest economy with GDP of $3.74 trillion, but has a low per capita income of $2,600, which puts it in the 131st position globally.

China’s GDP, which was 65 per cent of US GDP in 2023, is forecast to be 71 per cent of US GDP in 2029. The robustness of the Indian economy reflects "continuing strength" in domestic demand and a rising working-age population, said the Washington-based global financial agency.

A Goldman Sachs report has predicted that India’s economy is on track to surpass the US by 2075 to become the world’s second-largest after China.

India’s GDP will rise to $52.5 trillion by 2075, next only to that of China with $57 trillion and leaving behind the US with $51.5 trillion. India’s growth story will be propelled chiefly by its labour force, technological advances and rising capital investment, the US bank said.

India has improved its per capita GDP ranking from 153 in 2018 to 144 in 2023, going past the Republic of Congo, Ghana, Kenya, Cambodia and the Lao People’s Democratic Republic. By 2029, it is forecast to overtake Uzbekistan, Papua New Guinea and Angola.

“India has made more progress in innovation and technology than some may realise. Innovation and increasing worker productivity are going to be important for the world’s fifth-biggest economy. In technical terms, that means greater output for each unit of labour and capital in India’s economy,” noted Santanu Sengupta, Goldman Sachs’s chief India economist.

"In order to achieve its developmental aspirations over the next three decades, the Indian economy must grow at a rate of 8-10 per annum over the next decade to reap the demographic dividend that started accruing from 2018 and, as calculations show, will last till 2055," the Reserve Bank of India said in its monthly bulletin released on Tuesday.

Krishna Srinivasan, director, Asia and Pacific Department, IMF has said that India's macro fundamentals look “pretty good” and that overall, the country's economy is doing very well. "Growth at 6.8 per cent is very good. Inflation's coming down. We have to make sure that inflation comes down to the target and it is there on a durable basis," Srinivasan was quoted as saying by a national news agency during an interview.

During the opening remarks at the press conference on the Regional Economic Outlook for Asia and Pacific in Washington, DC on April 18, 2024, the IMF officials said that growth surprised with the upside in the second half of 2023, as robust domestic demand fuelled activity especially in emerging Asian economies. "Malaysia, the Philippines, Vietnam, and, most notably, India recorded a sizeable positive growth surprises," he said. IMF upgrades FY25 India GDP forecast to 6.8 per cent.

In this fiscal year, Srinivasan said in China and India, the IMF expects investment to contribute disproportionately to growth — much of it public, especially in India. "In Emerging Asia outside China and India, robust private consumption will remain the main growth engine."