India stands at an interesting crossroads today. The government of India has officially claimed the status of fourth largest economy in the world, beating Japan. Subsequent analyses and reports have challenged the accuracy of this claim, pointing out that it may be premature. The IMF’s April 2025 World Economic Outlook projected India’s nominal GDP for FY25 at $3.909 trillion and Japan’s GDP for 2024 at an estimated $4.026 trillion. This shows India as still the fifth-largest economy. The IMF projects India to overtake Japan in late 2025. India’s GDP is expected to reach $4.187 trillion compared to Japan’s $4.186 trillion, but this is a forecast, not a current reality.
NITI Aayog member Arvind Virmani clarified that Subrahmanyam’s statement was based on IMF projections for 2025, not current data, and that India is expected to become the fourth-largest economy by the end of 2025. The government continues to point to India’s economic growth and its expected rise to number four, regardless. Some media and public figures celebrated the milestone based on Subrahmanyam’s statement. The debate centres on the timing and interpretation of IMF projections rather than a formal withdrawal of the claim.
Taking the claim at its face value, let us ask why do millions of citizens still face poverty, unemployment, and insufficient access to essential services. This paradox embodies modern India. We claim a booming economic growth, yet there are deep-rooted problems that limit societal progress.
The Rise of a Global Economic Power
In 1991-92, the then Prime Minister PV Narsimha Rao and Finance Minister Dr. Manmohan Singh laid a firm foundation for a dramatic improvement in India’s economic landscape. Later on, India’s Prime Minister, the late Dr. Manmohan Singh took the economic liberalisation to the next level. Consequently, the manufacturing sector has been growing at 9.9% in the 2023-24 financial year. The services sector continues to demonstrate remarkable resilience. India’s information technology and business services now account for 8.1% of global exports. The country’s GDP per capita in purchasing power parity terms increased to $10,233 in 2023. This growth elevated India’s share of the global economy from 4% to 7.5%, with real GDP growth forecasted at 6.3% for 2025.
However, this impressive aggregate growth masks a more complex reality. While India may have surpassed Japan in total economic output, Japan’s per capita income of $33,000 exceeds India’s $3,000 eleven-fold. This disparity highlights a fundamental truth. India’s massive population of over 1.4 billion has contributed to its economic size. On the other hand, only 125 million Japanese have taken Japan to unprecedented prosperity. So, India’s challenge doesn’t involve growing the economy. It needs to ensure that growth translates into meaningful prosperity for individual citizens.
The Inequality Challenge
India’s income distribution reveals stark disparities that threaten the sustainability of its economic progress. The richest 1% of Indians control 22.6% of national income and hold 40.1% of the nation’s wealth. A 2021 Pew Research Center analysis found that 1.2 billion Indians fall into the lower-income category. Only 66 million are in the middle-income bracket and a mere 2 million in the high-income group.
These statistics paint a picture of an economy that, while growing fast, hasn’t yet learned to share its benefits equitably. The top 10% of Indians own 80% of the nation’s wealth, creating a society where economic opportunity remains concentrated among a relatively small elite. This concentration of wealth isn’t just a social concern—it represents a significant drag on economic potential, as it limits domestic consumption and reduces the multiplier effects of economic growth.
The rural-urban divide compounds these challenges. Rural areas, where nearly 70% of Indians still live, often lack the infrastructure, services, and opportunities that drive prosperity in urban centers. Low agricultural productivity traps many rural workers in subsistence farming. This offers little opportunity for economic advancement.
The Employment Puzzle
India’s unemployment landscape presents another paradox. Official statistics report a low unemployment rate of 3.2% for 2022-23. But independent estimates suggest the reality is more concerning. The rates are as high as 7.0% and urban youth unemployment reaching 16.8%. The disconnect between these figures reflects the prevalence of underemployment. Informal work arrangements provide income but little security or opportunity for advancement.
Perhaps more troubling is the quality of employment. About 90% of India’s workforce operates in the informal sector, characterized by low wages, job insecurity, and limited benefits. The COVID-19 pandemic worsened these challenges. It forced many workers to return to less productive agricultural jobs, or rely on gig and contract work in the organized sector.
Only 20% of the country’s 600 million-strong labor force is skilled enough to meet the industry’s demand. It is 80% in developed nations. This gap becomes apparent among educated youth. 65.7% of unemployed individuals in 2022 had received formal education but lacked the practical skills demanded by modern employers.
Educational Foundation Under Strain
India’s education system struggles to meet the demands of a fast evolving economy. The literacy rate has increased from 52.2% in 1991 to 74.04% in 2011. However, there is a vast difference in quality and availability of education. Those in the lowest income bracket receive an average of 2.8 years of education, while those in the highest receive 11.56 years. A Pratham Foundation report found that 25% of children aged 14-18 cannot read simple text fluently. So, basic literacy remains an unfinished agenda. None of the Indian universities rank among the world’s top 100. The problems are political meddling, old-fashioned teaching, not enough money, and weak industry connections.
This educational underperformance has real economic consequences. The global economy demands high-skill workers capable of navigating technological change and innovation. India’s educational system struggles to produce graduates ready for these challenges. The result is a workforce that, despite its size, cannot fully capitalize on the opportunities presented by global economic integration.
Quality of Life: Persistent Challenges
Extreme poverty affects about 300 million Indians; meanwhile, 65% lack proper sanitation, and 25% have no electricity. Water shortages affect at least 600 million, and contaminated water causes 200,000 deaths yearly. Rural areas face the most significant challenges, due to under-equipped health centers and insufficient basic services.
The infrastructure deficit represents both a challenge and an opportunity. India faces a $1.5 trillion infrastructure gap over the next decade, but addressing this need could drive significant economic growth while improving quality of life for millions of citizens.
Skilled Indians Are Leaving Despite Economic Growth
India is experiencing an outflow of wealthy, highly skilled individuals. A record 6,500 millionaires left India in 2023, surpassing any other nation in millionaire departures. This wasn’t a one-year phenomenon. Approximately 100,000 rich Indians left the country between 2014 and 2023.
The wealthy aren’t the only ones leaving. The US employs over one million Indian IT professionals, with thousands more employed in Canada, Australia, the UK, and Germany. Student flow is equally revealing. The 2022-23 academic year saw over 268,000 Indian students seeking higher education abroad in science, technology, engineering, and business. The US and UK healthcare sectors reflect similar patterns, employing over 80,000 doctors from India. The migration of trained nurses abroad highlights India’s failure to employ them within the country.
This massive outflow of talent contradicts India’s economic success story. India may claim to have become the world’s fourth-largest economy, but this growth hasn’t translated into equal opportunities for everyone. There is an uneven distribution of education, wealth and career prospects across the country. Job creation in high-skill sectors hasn’t kept pace with the rising aspirations of India’s educated population. High-skill Indian professionals are leaving because of bad governance and corruption, among other reasons.
Bureaucratic red tape continues to hamper innovation and business development. India’s spending on research and development remains low, limiting opportunities for cutting-edge work. Academic institutions often lack the freedom and resources that researchers and professionals seek. These limitations show up in international rankings. India ranks 40th in the Global Innovation Index for 2023, trailing behind countries with much smaller economies. This suggests that while India excels in overall economic output, it still struggles to create the innovative, high-tech environment that attracts and retains top talent.
Charting a Path Forward
India’s economic ascent creates both opportunities and responsibilities. Its large youth population can drive economic growth if given proper education and job opportunities. To achieve this, we need to overcome current barriers to inclusive growth. The education system requires substantial investment and reform, focusing not just on access but on quality and relevance to modern economic needs. Strengthening the research ecosystem through university-industry partnerships could position India as an innovation leader rather than just a low-cost provider.
Infrastructure investment remains crucial. It can improve the economic efficiency and improve quality of life. Widespread access to healthcare and education, coupled with improved social protection, could distribute the benefits of economic growth more equitably.
Of course, progressive taxation offers one path toward greater equity, with experts suggesting that wealth taxes could fund expanded public services and reduce inequality. Rural development programs need enhancement to bridge urban-rural divides, while manufacturing reforms could help shift surplus agricultural workers to more productive sectors.
Above all, frequent communal disturbances mar India’s international image as a land of opportunity for entrepreneurs and investors. Not only are we unable to attract large scale foreign investments but our own high-value citizens are migrating to more stable societies.
Conclusion
India’s journey toward becoming the world’s fourth-largest economy represents a remarkable achievement. It reflects the ambition, talent, and resilience of its people. However, this milestone marks not an end but a beginning. A far more complex challenge lies ahead. India needs to ensure that economic size translates into shared prosperity. Growth should be balanced with equity, efficiency with inclusion, and global competitiveness with domestic needs. GDP figures do not indicate economic prosperity. To achieve this, India must develop an inclusive economy by offering opportunity, security, and dignity to everyone. The foundation for this transformation exists—now comes the harder work of building upon it. For this political will and vision are required.
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