India is the fastest-growing major economy in the world, with GDP growth breaking expectations. However, not all that glitters is gold.
India confirmed its position as the world’s fastest-growing major economy, boasting an 8.4% GDP growth in the July-September period last year. At $3,176 trillion the Indian economy is the fifth-largest in the world and is widely expected to pass Germany and Japan in the following years.
Q3 GDP growth surpassed market expectations and left China in the dust. Beijing reported a 4.9% economic expansion in Q3, followed by 5.2% in the last quarter of the year.
China is the world’s second-largest economy but is facing a swath of economic hardships that may hamper its growth. A nationwide real estate crisis, rampant deflation, and slower offshore trade have disappointed post-COVID growth expectations.
In 2023, China also lost the top spot as the most populous country in the world to India. The Chinese fertility rate is one of the lowest in the world, with the country’s population set to fall below 1 billion people by 2100.
The strength of the Indian economy is mainly driven by the manufacturing sector, which grew by 11.6% for the period. The Indian real estate market is also growing more than expected, attracting foreign investments to the country.
Real GDP vs real economy
Indian Prime Minister Narendra Modi posted the better-than-expected result on his X (formerly Twitter) account. He said the reading shows “the strength of the Indian economy and its potential.”
Modi will be up for re-election in the country’s general elections later this year. He is widely expected to retain the position, likely leading India for the following five years.
As Reuters points out, however, the latest GDP reading may be misleading on the true proportions of the Indian economy. Gross Value Added (GVA), a more accurate measure to visualize services and growth produced, increased by 6.5% for the period, almost 2% less than GDP.
This gap is likely caused by increasing government taxes, which artificially inflate GDP compared to the value of goods actually produced.
As Citi economist Samiran Chakraborty puts it: “The above-8% real GDP print should be read with caution given the large gap with GVA, a decline in agriculture activity and two-paced economic growth (investment far outpacing consumption).”
GDP per capita in India is the lowest among the top 10 largest economies in the world at just $2,256.59. By comparison, the UK’s GDP per capita is $46,510.28 with a similarly-sized economy.
India has a long road ahead when it comes to economic prosperity. However, they have all the intentions to build it.
