From GDP to Ground Reality: Inside India’s $4 Trillion Economy

SYNOPSIS

India's economy is now the fourth-largest in the world, reaching $4 trillion and surpassing that of Japan. However, this marks a key milestone in growth for the country, it brings to mind other pertinent questions like: What does it mean for the citizens of India? Is it truly inclusive growth?

Exploring India's Economic Landscape: A $4 Trillion Journey from GDP Statistics to Ground Reality

A Macroeconomic Triumph

India emerging as a $4 trillion economy is a milestone in its journey of development. It is aided by a young and energetic labor force, a rapidly advancing IT sector, rising foreign direct investments (FDI), and policies such as ‘Make in India’ etc. Significant levels of public spending on infrastructure have created industrial clusters and stimulated the growth of ancillary industries. Globally, India has enhanced its position in terms of trade pacts, climate discussions, and technology partnerships, and is growing to be a legitimate alternative to China as part of the global value chains, especially in the Indo-Pacific corridor.

Structural Fault Lines Beneath the Surface

Yet a closer look at the real-world situation tells a different and uglier story. Approximately half of India’s workforce is stuck in agriculture, an area that contributes only 18% of GDP. Meanwhile, capital-heavy service sectors, including IT, financial services, and real estate contribute more than 50% of GDP and require only 30% of the workforce (almost all in the urban economy). This calls attention to India's premature change from agricultural economy to service economy without having configured an industrial phase that could accommodate surplus rural workers.

India's heavy dependence on Business Process Management (BPM) services, which make up almost 50% of India's total services exports, presents additional vulnerabilities. With global developments in Artificial Intelligence (AI) and Machine Learning (ML) accelerating, this sector may rapidly face technological obsolescence possibly threatening any future tax revenues that they receive from exports that stop coming.

Moreover, India’s per capita income, standing at $2,800, lags significantly behind China ($13,000) and Japan ($33,000), reflecting a disconnect between GDP growth and individual prosperity. Declining household savings, coupled with persistent inflation, have forced consumers to curtail discretionary spending and rely heavily on small-ticket consumer loans (below ₹1,00,000) for daily necessities. Industrial credit offtake remains sluggish, signalling weak private sector investment appetite.

Compounding these issues, approximately 90% of the workforce is employed in the unorganised sector, devoid of formal job security and social benefits. Female labour force participation remains alarmingly low at 30%, representing an underutilised economic resource. These labour market inefficiencies demand urgent reforms and comprehensive social safety measures to ensure inclusive growth.

Bridging the Gap

India’s $4 trillion GDP milestone, while commendable, cannot be the sole yardstick of progress. The real test lies in translating this macroeconomic success into tangible improvements in employment quality, income equity, healthcare, and education. Structural reforms, MSME empowerment, skilling initiatives, and focused social policies are imperative to bridge the chasm between GDP metrics and the lived realities of its populace.

Nishant Shelke