GDP may be bigger, and yet not better

There’s not much to cheer about India pipping the UK in terms of the size of the GDP, and becoming the fifth largest economy in the world. India may have achieved this feat as early as March this year or even earlier, without much change (for better) in people’s lives. In fact, things have only worsened since the beginning of the year.

India’s per capita gross national income (GNI) was among the lowest at $2,170 (compared to $45,000 of the UK) at the end of 2021. It overtaking the UK in the size of GDP since then may not have changed the per capita GNI levels by much. The average income level in India is still less than a fifth of that in the UK. India is still a lower-middle income country, and according to Bibek Debroy, Chairman, Economic Advisory Council to the Prime Minister, India can become a middle-income country and reach the per capita income of $10,000 by 2047 if it achieves a sustained growth rate of 7–7.5%.

It may very well overtake Germany by 2030 and become the third largest economy, and yet remain a lower-middle income country (as per current definition, a country with per capita GNI of $1,086–4,255 is categorised as a lower-middle income country). 

Of course, we have been growing at a much faster pace compared to some of the other large economises—India’s economy in dollar terms has grown at a nominal rate of 5.71% CAGR over the past 10 years, compared to the UK’s 1.76%, Germany’s 1.2% and the US’ 3.96%.But this growth is due to the demographic ‘advantage’ that India has over more developed countries in Europe and North America. We have the second largest population in the world and also one of the largest young populations.

But this also necessitates that we grow at a much faster pace to ensure that we have enough jobs for the young population joining the labour force every year. We have a poor labour force participation rate at 48% compared to 78% in the UK, and 62% in the US. Low labour force participation coupled with high rate of joblessness (as high as 8-9%) is not an ideal situation for a country that likes to boast every time it crosses a milestone, howsoever small the milestone may be.