At $3.5 trillion GDP, Indian economy races past UK; to overtake Japan in 2029 to be the third largest in the world

New Delhi: India has overtaken the UK to become the world's fifth-largest economy and is now behind only the US, China, Japan and Germany, according to IMF projections.

A decade back, India was ranked 11th among the large economies while the UK was at the fifth position.

With record beating expansion in the April-June quarter, the Indian economy has now overtaken the UK, which has slipped to the sixth spot.

The assumption of India overtaking the UK is based on calculations by Bloomberg using the IMF database and historic exchange rates on its terminal.

"On an adjusted basis and using the dollar exchange rate on the last day of the relevant quarter, the size of the Indian economy in 'nominal' cash terms in the quarter through March was USD 854.7 billion. On the same basis, the UK was USD 816 billion," stated a Bloomberg report.

The Bloomberg report came days after the release of official data for the June quarter which showed a 13.5 per cent growth on a year-on-year basis.

India pipped UK in Dec 2021

However, the economists at SBI said on Saturday that the Indian economy overtook the United Kingdom in December 2021 itself to be the fifth largest in the world.

"…(India) is now the 5th largest economy. Interestingly, India had surpassed the UK as the 5th largest economy as early as December 2021 itself and not recently as is being claimed," the note by the SBI economists said.

It said the country has seen a large structural shift in the Narendra Modi regime, and its share of the world GDP has now increased to 3.5 per cent as against 2.6 per cent in 2014 when he took over as the Prime Minister. The same is likely to cross 4 per cent in 2027, which is the present share of Germany.

The report said India was 10th largest economy in the world in 2014 and will surpass Germany in 2027 and Japan in 2029 to be the third largest in the world.

State of world's top economies in 2022

India’s estimated GDP for 2022 stands at $3.5 trillion as compared to UK’s $3.2 trillion.

Japan's GDP is projected to reach 5.5 trillion in 2022 against India's $3.5 trillion. Germany's current GDP stands at $ 4.25 trillion.

US sits at the top with an estimated 2022 GDP of $25 trillion followed by China's GDP at $19 trillion.

"Proud moment for India to pip the UK, our colonial ruler, as the 5th largest economy: India $3.5 trillion vs UK $3.2 trillion. But a reality check of population denominator: India: 1.4 billion vs UK 0.068 billion. Hence, per capita GDP we at $2,500 vs $47,000. We have miles to go... Let's be at it!," Uday Kotak, CEO of Kotak Mahindra Bank, said in a tweet.

India has a population 20 times that of the UK and so its GDP per capita is lower.

"We just became the 5th largest #economy in the world, surpassing the UK!," tweeted Anil Agarwal, chairman of mining giant Vedanta group. "What an impressive milestone for our rapidly growing Indian economy... In a few years, we will be in Top 3!"

Opportunities and challenges

India's GDP expanded 13.5 per cent in the April-June quarter, the quickest pace in a year, to retain the world's fastest growing economy tag but rising interest costs and the looming threat of a recession in major world economies could slow the momentum in the coming quarters.

Gross domestic product (GDP) growth of 13.5 per cent year-on-year compares to a 20.1 per cent expansion a year back and 4.09 per cent growth in the previous three months to March, according to official data released earlier this week.

The GDP growth in the first quarter of the current fiscal was higher than China's 0.4 per cent expansion in April-June.

A slowdown in investments into China is likely to benefit India in the coming days, it said, pointing to mobile handset maker Apple's intention to produce the latest phone model from India as being illustrative of the optimism.

Pointing out that China embarked on an accelerated growth path at the beginning of the current century which helped it to become the second largest economy, the report said the “right policy perspective and realignment in global geopolitics” can also lead to an upward revision in its estimates for India.

The growth, though lower than the Reserve Bank of India (RBI) estimate of 16.2 per cent, was fuelled by consumption and signalled a revival of domestic demand, particularly in the services sector.

Pent-up demand is driving consumption as consumers, after two years of pandemic restrictions, are stepping out and spending. The services sector has seen a strong bounce back that will get a boost from the festival season next month.

But the slowing growth of the manufacturing sector at 4.8 per cent is an area of worry. Also, imports being higher than exports is a matter of concern.

Additionally, an uneven monsoon is likely to weigh upon agriculture growth and rural demand.

The GDP print will, however, allow the RBI to focus on controlling inflation, which has stayed above the comfort zone of 6 per cent for seven straight months.

The central bank has raised the benchmark policy rate by 140 basis points in three installments since May and has vowed to do more to bring inflation under control.

Besides tighter monetary conditions, Asia's third-largest economy faces headwinds from higher energy and commodity prices that are likely to weigh on consumer demand and companies' investment plans.

Also, consumer spending, which accounts for nearly 55 per cent of economic activity, has been hit hard by soaring food and fuel prices.