Missed targets and fading promises — the reality of India’s $5 trillion goal

The IMF places India’s 2024 GDP at $3.91 trillion. Japan’s 2024 GDP is $4.03 trillion. India is yet to overtake Japan to be the fourth-largest economy. The claim made is premature.

On May 30, the NSO released the 2024-2025 GDP estimates: a real GDP growth of 6.5 per cent is far lower than the 9.2 per cent growth in 2023-2024 — a loss of momentum by 30 per cent in a year.

Indian officialdom (NITI Aayog CEO B V R Subrahmanyam, G20 Sherpa Amitabh Kant) claimed that India has overtaken Japan to be the fourth-largest economy. This false claim has been echoed by the prime minister.

What does India’s 2024-2025 GDP estimates tell us?

Growth slowing to 6-6.5 per cent

Modi 2.0 (2019-2024) was nothing short of a disaster with anaemic growth of 3.9 per cent in 2019-2020, and an unprecedented contraction of (-)5.8 per cent in 2020-2021, though it rebounded in 2021-2022 at 9.7 per cent. Growth momentum in the last two years (2022-2023 and 2023-2024) was quite good (7.6 per cent and 9.2 per cent), averaging 8.4 per cent.

Modi 2.0 generated an underwhelming five-year GDP growth of only 4.75 per cent, though the last two years’ performance generated hopes that India might be able to attain an annual growth of 7.5-8 per cent going forward.

Alas, it was not to be. In 2024-2025, the first year of Modi 3.0, the GDP growth is merely 6.5 per cent — one-fourth less than the previous two years’ average. This indicates a serious loss of momentum.

Most institutions expect the 2025-2026 GDP growth to be between 6-6.5 per cent.

Worrying signals

Four reasons make one worried:

First, manufacturing growth skid to a low of 4.5 per cent from 12.3 per cent in 2023-2024. It is also quite volatile (-1.7 per cent in 2022-2023).

Second, an artificial boost provided by net taxes — high tax growth and significant reduction in subsidies (12.4 per cent and 16.5 per cent in 2022-2023 and 2023-2024) — is coming to an end (7.2 per cent in 2024-2025).

Third, two major service groups — a) trade and commerce, and b) financial and real estate, which together contribute between 40-42 per cent of total gross value added (GVA) — are slowing. Trade and commerce services growth declined from 12.3 per cent in 2022-2023 to 7.5 per cent in 2023-2024, and further to 6.1 per cent in 2024-2025, while the financial services group declined from 10.8 per cent in 2022-2023 to 10.1 per cent in 2023-2024 and to 7.2 per cent in 2024-2025.

Fourth, investment/gross fixed capital formation (GFCF) growth is moderating — from 8.8 per cent in 2023-2024 to 7.1 per cent in 2024-2025, which will also impact growth in the construction group.

These tell-tell signs portend that GDP growth might remain in the 5.5-6.5 per cent bracket during Modi 3.0.

Failed to attain $5 trillion GDP goal and faltering for $10 trillion

The Modi government declared the goal of making India a $10 trillion economy by mid-2030s in 2019-2020 Interim Budget and a $5 trillion economy by 2024-2025 in July 2019.

India’s dollar GDP was $2.8 trillion in 2018-2019. In the last six years, India’s GDP grew to only $3.91 trillion.

Without doubt, the Modi government failed miserably, as it could cover only 50 per cent of the distance required to achieve the $5 trillion GDP goal. The government rarely talks about $5 trillion GDP these days.

Dollar GDP growth depends upon two factors — India’s nominal GDP growth and depreciation of the Indian rupee vis-à-vis the US dollar. India’s nominal GDP of Rs 330.7 trillion in 2024-2025, at Rs 84.6 to a dollar, translates to $3.91 trillion.

Considering trend, demand, and inflation, India’s nominal GDP is likely to grow at about 10 per cent per annum in foreseeable future, which will take the nominal GDP to about Rs 857.70 trillion in 2034-2035. Assuming annual rupee depreciation of 3 per cent, the rupee-dollar exchange rate will be Rs. 113.7 in 2035, which will translate into India’s dollar GDP to $7.54 trillion in 2035.

Given this, India is likely to miss the $10 trillion goal as well.

Premature claim

The IMF places India’s 2024 GDP (2024-2025 in India’s context) at $3.91 trillion. Japan’s 2024 GDP is $4.03 trillion. India has not overtaken Japan in 2024-2025 to be the fourth largest economy. The claim made is fake and premature.

Indian officials have apparently been misled by the IMF’s projected data for 2025, which show India’s and Japan’s GDPs exactly same at $4.19 trillion at two digit. Only at third digit, India is projected to be marginally ahead of Japan ($4.197 versus $4.196 trillion). They have surprisingly assumed 2025 to be 2024-2025.

This future projection for 2025 may not turn out to be true.

India, at number five in terms of GDP currently (2024), is poor (a lower middle-income country with gross national income (GNI) per capita of $2,540), placed 150th in the World Bank’s income-based classification of countries. Japan (at number four) and Germany (at number three) are high-income countries placed at 32 and 19 place with GNI per capita of $39,350 and $54,800 respectively.

The IMF projections for India are usually optimistic ($6.80 trillion in 2030; implied dollar growth of 9.7 per cent). Despite this, India will surely overtake Japan in 2026-2027, if not in 2025-2026. Likewise, India will surpass Germany’s GDP sometime between 2027-2028 and 2029-2030. India will still be about 10-15 times poorer than Japan and Germany.

Viksit Bharat is a chimera

To Modi’s credit, he set economic goals in specific terms — doubling farmers’ income by 2022, a $5 trillion GDP by 2024, and the like. Unfortunately, none of these specific goals were achieved. The buzz for ‘Viksit Bharat @2047’ essentially is escapism, as 22 years later Modi is unlikely to remain the prime minister and, thus, held accountable.

(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, ‘Commentary on Budget 2025-2026’, and ‘We Also Make Policy’.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.