A measure of growth amid deepening inequalities

India’s no. 4 spot in GDP rankings must be viewed along with declining wages and subdued consumption.

As of May 2025, India has officially surpassed Japan to become the world’s fourth-largest economy by nominal GDP, according to data released by the International Monetary Fund (IMF). India’s nominal GDP is projected at $4.19 trillion, slightly edging past Japan’s $4.18 trillion. This economic milestone was formally announced by B V R Subrahmanyam, CEO of NITI Aayog, at a press briefing following the 10th Governing Council meeting of the national policy think tank. Some economists argue that the actual crossover may occur closer to the end of the 2025-26 fiscal year, depending on fluctuations in exchange rates and quarterly data. Nonetheless, India’s current growth trajectory suggests that it may overtake Germany to become the world’s third-largest economy by 2028.

This development has been met with jubilation across the ruling coalition. Union Commerce and Industry Minister Piyush Goyal hailed the achievement on social media, proclaiming, “We are the 4th largest economy in the world! This is Bharat rising under PM Narendra Modi ji.” Sarbananda Sonowal, Union Minister of Ports, Shipping and Waterways, congratulated the public and credited the success to Prime Minister Modi’s “astute, dynamic and strong leadership” since 2014. Andhra Pradesh Chief Minister N Chandrababu Naidu echoed this sentiment, citing the Prime Minister’s “visionary leadership and strong economic governance.” Similarly, Maharashtra Deputy Chief Minister and Finance Minister Ajit Pawar lauded both Prime Minister Modi and Finance Minister Nirmala Sitharaman for steering the economy to this landmark.

While such expressions of pride are understandable in a country long yearning for global economic recognition, these celebrations are also misleading from the economic realities facing the majority of Indians. The tendency to highlight nominal GDP in isolation, without accounting for population size, creates a distorted picture of national prosperity. India’s population exceeds 1.4 billion, nearly 11 times that of Japan. When GDP is distributed per capita, the disparity becomes glaring.

India currently ranks 136th in the world in GDP per capita, according to the IMF’s latest estimates. In contrast, Japan stands at 34th. This means that while the Indian economy as a whole may have outgrown Japan’s in absolute terms, the average Indian remains far poorer than the average Japanese citizen. Per capita income remains a far more meaningful metric of economic well-being, yet it is conspicuously absent from political rhetoric. This omission is hardly surprising, as it undermines the narrative of triumph being projected by those in power.

Over the last decade, India’s per capita GDP in comparison with other countries has seen only modest improvements, failing to significantly elevate the standard of living for a large section of the population. This sluggish growth points to deeper structural issues in the economy – issues that the absolute GDP figures conveniently gloss over. Chief among these is a stark and rising inequality.

India’s Economic Survey for FY24 paints a troubling picture. While corporate profits soared by 22.3%, reaching their highest levels in 15 years, employment grew by a meagre 1.5%. Wage growth remained subdued. More disturbingly, real wages for workers declined substantially between 2017-18 and 2023-24. Male self-employed workers experienced a 9.1% decrease in real earnings, while female self-employed workers saw their incomes fall by a staggering 32.2%. Among salaried employees, men and women faced real wage reductions of 6.4% and 12.5%, respectively.

A rising imbalance

The Economic Survey warned that the disproportionate rise in corporate profits – concentrated largely among large firms – raises serious concerns about income inequality. The imbalance between profit growth and stagnant or declining wages could have serious macroeconomic consequences. If household earnings fail to rise, consumer demand may weaken, undermining the very growth that headline GDP figures seek to celebrate.

The Ministry of Statistics and Programme Implementation (MoSPI), in its latest ‘National Accounts Statistics – 2025’ publication, also confirms a shrinking wage bill relative to GDP, even as corporate profits expand. These trends are corroborated by data from the Centre for Monitoring Indian Economy (CMIE), which recently reported a decline in consumer sentiment, further pointing towards a potential slowdown in domestic demand.

These warning signs are not anomalies; they are symptomatic of the economic policy direction pursued over the past decade. The significant cuts in corporate tax rates, aimed to attract investment and boost growth. have not translated into proportional increases in employment or income levels. Simultaneously, social sector spending has either stagnated or been curtailed in critical areas such as education, health, and rural development. As a result, the benefits of economic growth have been concentrated among a narrow segment of the population, particularly capital owners, while wage earners and informal sector workers continue to struggle.

India’s ascension to the fourth position in global GDP rankings draws attention away from the harsh realities faced by millions – rising inequality, declining real wages, weak job creation, and subdued consumption. If anything, it should prompt serious introspection about the quality and inclusiveness of India’s economic growth.

Celebrating nominal milestones while ignoring the foundational cracks in the economy is not just misguided – it is dangerous. Real progress will come not from overtaking Germany or Japan in GDP rankings, but from ensuring that economic growth translates into better livelihoods, rising wages, and reduced inequality. Until then, such achievements remain hollow, and their celebration premature.

(The writer is an assistant professor with the Department of Professional Studies, Christ University, Bengaluru)