India on Its Way to Become World’s Second Largest Economy?

13 May 2022
8 min read
India on Its Way to Become World’s Second Largest Economy?

India was on its way to becoming the world’s second-largest economy before the pandemic. The country was expected to surpass Japan as the world’s third-largest economy when it would have overtaken France in 2021, according to the analysis by The Economist Intelligence Unit (EIU) released on Wednesday.

“India is growing at a rate of 7 per cent per year,” EIU Economist Andrew Stotz said. “We expect that India will overtake France in 2021 and then Japan in 2029.”

What are we doing right?

India currently is one of the world’s largest economies, and with its rapid growth, it is becoming an increasingly important player on the global stage. What is it doing right as a country?

1) Democracy

For one thing, India has developed a vibrant democracy that has allowed it to avoid many of the pitfalls that other developing countries have experienced when transitioning from authoritarian rule to democracy.

2) Young Population

India has a young population which is its strength in terms of growth rate and production capabilities. The young generation is more educated than previous generations and this will contribute to growth in terms of productivity and innovation.

3) Talented Workers

Another key factor in India’s success is its large population of talented workers—a result of its high literacy rate and its extensive education system. This has made it possible for India to become an outsourcing hub for many companies worldwide. As a result, many multinational corporations are now based out of India rather than in other parts of Asia or Europe.

4) Low taxes and increased infrastructure 

Low taxes and regulations as well as a strong infrastructure in terms of power plants and telecommunications networks are also contributional factors.

5) Manufacturing and reliance on own resources

The next reason why India has been so successful at growing its economy is that it has not relied on foreign aid or loans from other countries to fund its projects. India has started focusing on manufacturing which will help boost its exports as well as create jobs for those who want to start their own business. 

India relies heavily on its own resources to achieve economic growth by making investments in infrastructure development such as building roads, bridges, dams, and power plants; creating jobs through government spending on education programs; providing food subsidies for low-income families; supplying clean water through piped networks or rainwater harvesting systems; creating social security benefits for pensioners; etc. All these help to stimulate economic growth because they create more jobs for people who are unemployed or underemployed

Can India still become World’s Second Largest Economy despite Covid-19?

As of 2022, India’s GDP per capita was $6,800 and its GDP was $2 trillion. This puts India ahead of all other BRICS nations except Russia in terms of GDP per capita and GDP. In comparison to other nations at similar stages of development (Brazil, China, South Africa, Russia), India also has higher levels of industrialization and urbanization than any of these other countries except China. 

India’s economy is currently ranked as the sixth-largest in the world. It has a GDP of $3.25 trillion, which is almost equal to that of Japan and South Korea combined. As of 2022, India’s economy is growing at 4% annually, with an expected growth rate of 6% over the next five years.

India has made great strides over the past 15 years toward becoming an economic powerhouse in Southeast Asia. But, will India still become the world’s second-largest economy as projected even after the impacts of the Covid-19 pandemic?

The answer to this question is that yes, India will become the world’s second-largest economy as projected even after the COVID-19 pandemic. The reason is that while India has been affected by COVID-19, it has not been as severely affected as many other countries have been.

India has a fairly stable government and economy compared to some other countries in Southeast Asia and Africa where elections are often held during times of instability or unrest. This allows them to continue their development plans without interruptions from political upheaval as we saw in Venezuela for example where elections were postponed due to political turmoil there before their own elections took place later in the year 2020.

Additionally, India has a young population which is its strength in terms of growth rate and production capabilities. The young generation is more educated than previous generations and this will contribute to growth in terms of productivity and innovation.

Next, India has started focusing on manufacturing which will help boost its exports as well as create jobs for those who want to start their own business. Manufacturing is one sector that contributes greatly toward economic growth because it produces goods that can be sold locally or internationally depending on demand and supply conditions in these markets.

Challenges That Hinder The Growth

Several factors could hinder India on its path to becoming a global economic powerhouse.

1) Population

First, India’s population is expected to grow from 1.3 billion to 1.7 billion by 2030—an increase of almost 40%. This means more people will be competing for jobs, which could slow down economic growth. 

2) Need for more resources

Second, as India’s economy grows, it will need more resources, especially energy and food. If these resources are not available or are too expensive, they could cause inflation and affect productivity levels in the country’s industries. 

3) Corruption

Thirdly, India has been plagued by corruption scandals in recent years which have caused people to lose faith in their government institutions such as the police force or judiciary system which could make them hesitant about investing money into businesses or buying products made by local companies due to fears of being cheated out of their money which would then hurt GDP growth rates even further than forecasted projections.

4) Lack of infrastructure

Another challenge facing India is its lack of infrastructure; there simply aren’t enough roads or rail lines connecting different regions together efficiently enough for them to compete globally except for certain industries like textiles where companies can use these resources more effectively than others might be able to do so elsewhere around the world.

Impact of Covid-19 on the Economy of India

The recent outbreak of covid-19 has affected India’s growth rate. The Indian economy has grown rapidly over the last few decades, but now it must deal with many challenges brought about by this new pandemic. The country’s economy is largely dependent on agriculture; thus, food security has become a major concern for India’s policymakers and citizens. In addition, India needs to increase its exports in order to sustain economic growth.

  • High debt-GDP ratio

One of the major problems facing India’s economy is its high debt-to-GDP ratio—almost 70%. This makes it difficult for India to invest in infrastructure, which would help drive growth in other sectors such as manufacturing and agriculture.

  • Decrease in demands for certain products

However, the demand for food items like milk and yoghurt has dropped significantly since December 2019 due to a shortage in supply due to COVID-19 restrictions on these products as well as other commodities such as fruits and vegetables. This has caused a decline in agricultural production across India due to the reduced availability of inputs such as seeds or fertilizers necessary for farming activities.

  • Closing of public places

The closing of schools and other public places led to an increase in unemployment and lower productivity levels, which further led to a decline in gross domestic product (GDP) growth by as much as 1 percentage point over two years. 

Additionally, recent studies have found that increasing health care costs could also affect India’s sovereign credit ratings negatively.

Recent natural calamities such as cyclone Fani which hit Odisha and West Bengal on 26 April 2019 also have added to these factors. Although it seemed like there will not be any major damage due to this cyclone, there was total damage of $8.1 billion which led to slower economic activity in these states. 

The impact of the COVID-19 pandemic on India’s economy is severe and widespread but it can still be managed by taking the required steps. 

How Can India recover?

India needs to recover from the effects of the covid-19 pandemic and become the world’s second-largest economy as projected by 2030. This can be achieved through a combination of factors including a focus on technological advancement, increasing access to health care, and focusing on infrastructure development.

As India recovers from the effects of the covid-19 pandemic, its growth rate is expected to rise by 7% in the coming years. This growth rate will increase as more people return to work and as businesses work towards restoring their capacities.

India’s economy has been growing at a rapid pace since 2014 due in part to government policies that encourage foreign investment, which has led to an increase in private-sector investment into the country’s infrastructure sector. This has helped improve India’s transportation systems and increased its connectivity with other nations around the world.

For India to reach its full potential as one of the world’s largest economies, it must focus on developing its own technological capabilities while also addressing issues such as poverty and malnutrition so that citizens can access health care services more easily than before.

You may also want to read, How Stock Market Affects Economy

Wrapping up

India is one of the fastest-growing economies in the world. But this could change due to the global pandemic, Covid-19, which has affected the growth of many countries.

The current economy of India in the year 2022 has been facing a difficult year, with GDP growth slowing down to 6.2% from 7.4% last fiscal year, as per government data. The economy has been hit by several factors including a liquidity crunch and falling exports due to weak demand from other countries.

As per Indian government estimates, there were over 1 million deaths due to Covid-19 in India between March and September 2019 alone. This has slowed down both consumption and investment activity across sectors such as manufacturing and construction where most jobs are created.

However, despite these challenges, it still remains one of the fastest-growing economies in the world because of its policies and reforms. By 2030, it is projected that India might become the world’s second-largest economy.

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