Charting a realistic path of India’s growth
emerging market story. It grew at an average annual pace of 6.6% in the decade to 2019-20. In 2022-23, with a growth rate of 7.2%, India outperformed most other major economies.
The International Monetary Fund (IMF) predicts the country will grow by over 6% in the next few years, and is on track to be the world’s third largest economy. This is creditable, but it is worth remembering that growth rate is the only GDP metric on which India does well. A different, less bullish narrative emerges when we dig deeper into the GDP data, one that gives a more realistic view of economic growth.
India has already been the third largest economy by purchasing power since 2008. Measuring GDP by purchasing power parity (PPP) adjusts for differences in the cost of living across countries. Since goods and services tend to be relatively cheaper in India, Indians enjoy higher purchasing power.
So the PPP method pushes India’s GDP upwards, allowing it to leapfrog other nations on this metric. In 2022, the top five countries by PPP were China, the US, India, Japan and Russia. In 1990, the US economy was nearly six times that of India, while China was about the same size.
Over time, the ratio has shrunk for the US and increased for China—both are now less than three times India’s size. PPP is a magic wand that makes India appear within reach of the world’s largest economies. But this seeming rise in purchasing power is mainly due to comparatively lower labour costs, rather than relative gains in India’s income.
However, without accounting for PPP, the top five economies in dollars in 2022 were the US, China, Germany, Japan and India. By 2027, India is expected to climb to third place, with an estimated GDP of $5.2 trillion. Bagging a bronze in
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