India's economy grew by 5.4% in the July-September quarter of the current fiscal year, showing a slowdown from the 6.7% growth in the previous quarter.
Despite this dip, India continues to hold the title of the fastest-growing major economy in the world.
India's economy is likely to surpass that of Japan's to become the fourth largest in the world by 2025. File image
This steady growth has fueled expectations that India will overtake Japan to become the world's fourth-largest economy. The International Monetary Fund (IMF) forecasts this could happen as soon as 2025.
The IMF estimates that India's economy will reach $4.34 trillion, surpassing Japan’s $4.31 trillion.
Here are five factors that might have contributed to this achievement:
Strategic government investments: Under the leadership of Prime Minister Narendra Modi, the Indian government has made infrastructure development and public investment a key focus to drive economic growth.
Programs like the National Infrastructure Pipeline and the Atmanirbhar Bharat (Self-Reliant India) initiative have drawn substantial investments across various sectors, including transportation, energy, and manufacturing. These efforts have also strengthened domestic demand and supported local industries.
Geopolitical shifts benefiting India: Growing geopolitical tensions, especially with China, have driven multinational corporations to diversify their supply chains.
India has become an attractive alternative in the China+1 strategy, offering political stability and a vast, skilled workforce. As a result, foreign direct investment has surged.
Global Investment Appeal: India’s financial markets have gained significant attractiveness for international investors, with the stock market showing notable growth and an increase in foreign investment inflows.
Furthermore, the inclusion of Indian government bonds in global indices, such as the JP Morgan Emerging Markets index, has bolstered capital inflows, helped reduce the fiscal deficit, and supported overall economic growth.
Advantageous Demographics: India’s young population offers a demographic advantage, with an expanding workforce that drives economic output and boosts consumer demand.
In contrast, Japan’s aging population presents obstacles to continued economic growth.
Growth driven by domestic demand: India's robust domestic demand has played a key role in fueling its upward growth trajectory.
Private Final Consumption Expenditure (PFCE) represented 60.4% of India’s nominal GDP in June 2024, a rise from 57.9% in the previous quarter.
As the world's most populous country, India is expected to maintain strong domestic demand moving forward.
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