KEY POINTS India’s economy is fast narrowing the gap with fourth-placed Germany

India’s central bank has lowered the GDP growth rate for the financial year to 5%

In GDP by purchasing power parity, India is already placed third after the U.S. and China

India overtook France and the U.K. to become the fifth-largest economy in 2019, a U.S. think tank has said. The Asian country with a nominal gross domestic product, or GDP, of $2.94 trillion is narrowing the gap with Germany, which is now in the fourth place with a GDP of $3.86 trillion, the World Population Review report shows.

The nominal GDP is the total value of all goods produced and services provided within a specified geographical unit at current prices, as opposed to real GDP estimated at constant prices, according to Investopedia website.

Purchasing power parity

India was developing into an open-market economy from its previous autarkic policies, reports cited the think tank as saying. “India's economy is the fifth-largest in the world with a GDP of $2.94 trillion, overtaking the U.K. and France in 2019 to take the fifth spot,” the Press Trust of India quoted the World Population Review as saying.

The size of the U.K. economy was estimated at $2.83 trillion in 2019 and that of France $2.71 trillion.

The report said that in purchasing power parity terms, or PPP. that is, the GDP estimated at U.S. prices, India's GDP is $10.51 trillion, exceeding that of Japan and Germany and behind only those of the United States and China.

Photo: AFP / Money SHARMA Because of the huge population, India’s GDP per capita, however, falls to $2,170, making it a lower-middle-income country, in the bracket of $1,026 to $4,035. In comparison, China at $10,098 is reckoned as a higher middle-income economy in the income bracket of $4,035 to $12,375. The U.S., with a per capita GDP of $62,794, falls in the high-income category that groups economies with per capita GDP above $12,375, according to the World Bank website.

India's real GDP growth, however, is expected to weaken for the third year straight from 7.5% to 5%, according to the report. India’s central bank lowered its estimate of GDP growth for the 2019-20 financial year, that runs from April to March, to 5% in December from the estimate of 6.1% made in October.

The think tank report pointed out that India's economic liberalization that began in the early 1990s including industrial deregulation, opening up of the economy to foreign trade and investment, and privatization of state-owned enterprises, has helped meet growth targets. “These measures have helped India accelerate economic growth,” it said.

$5 trillion economy target

India’s services sector is among the world’s fast-growing ones, accounting for about 60% of the economy and 28% of employment, the report said. Manufacturing and agriculture are two other significant sectors that have received special government attention since Prime Minister Narendra Modi’s government assumed office. Modi in his earlier stint in office launched the Make-in-India initiative for revitalizing the manufacturing sector. On the agricultural front, the Modi administration initiated direct payment into farmers’ bank accounts to boost the economy’s liquidity.

The national budget presented by Indian Finance Minister Nirmala Sitharaman has given a further push to various programs including privatization and economic liberalization with the objective of making India a $5 trillion economy by 2025.