India is poised to become the world's third-largest economy by 2030, overtaking Japan and Germany, according to financial forecasts by S&P Global, Morgan Stanley, and the International Monetary Fund[1][3]. This projection is based on India's strong economic growth, which is expected to continue at an average annual nominal GDP growth rate of 6.3% through 2030[1]. India's robust democracy, large domestic market, and advanced digital infrastructure are some of the factors driving its economic growth[1].
The impact of India's rise to the third-largest economy on poverty levels will depend on various factors, including the pace of poverty reduction, the effectiveness of growth-oriented reforms, and the creation of good jobs that benefit the bottom half of the population[2]. India has made remarkable progress in reducing extreme poverty, with the share of the population living in extreme poverty estimated to have halved between 2011 and 2019[2]. However, the pace of poverty reduction has slowed in recent years, especially during the COVID-19 pandemic[2].
To achieve its aspiration of reaching high middle-income status by 2047, India will need to realize a climate-resilient growth process that delivers broad-based gains to the bottom half of the population[2]. This will require growth-oriented reforms accompanied by an expansion in good jobs and addressing gaps in economic participation, including bringing more women into the workforce[2]. India's current account deficit, primarily driven by an increase in the trade deficit, stood at 2.1% of GDP in the first quarter of FY 2022-23[4]. The country is primarily a domestic demand-driven economy, with consumption and investments contributing to 70% of the economic activity[4].
Status of poverty in India
As of 2021, India has made significant progress in reducing poverty. Extreme poverty decreased from 22.5% in 2011 to 10.2% in 2019 according to the World Bank. The Indian government estimates that 6.7% of the population lives below the official poverty limit. Over the five years leading up to March 2021, approximately 135 million people, or about 10% of the population, were able to escape poverty.
The percentage of the population living in poverty dropped from 25% in 2015/16 to 15% in 2019-21, as reported by the government. A 2021 report by the United Nations Development Programme revealed a decline in multidimensional poverty from 55% in 2005 to 16.4% in 2021. Despite these improvements, about 229 million Indians still live in poverty, making India home to the largest number of poor people in any single country.
Poverty levels in India show a significant urban-rural divide, with 21.2% of the rural population living in poverty compared to 5.5% of the urban population. While progress has been made, there are ongoing challenges in achieving sustainable and inclusive growth for all citizens. India's growing economy, global commitments to poverty eradication, and government initiatives contribute to the efforts to combat poverty in the country.
While India's rise to the third-largest economy presents opportunities for trade and investment, it also poses challenges in terms of maintaining high growth, lifting millions out of poverty, and addressing economic and social inequalities[3]. The Indian government must continue to prioritize lowering inequality while also putting growth-oriented policies into place to boost the economy[4]. The realization of India's potential as a global economic power will require ongoing efforts to address structural issues, implement reforms, and ensure inclusive growth that benefits all segments of the population.
Citations:
[1] India may become the third largest economy by 2030, overtaking Japan and Germany https://www.cnbc.com/2022/12/01/india-to-leapfrog-to-third-largest-economy-by-2030.html
[2] India Overview: Development news, research, data - World Bank https://www.worldbank.org/en/country/india/overview
[3] Forecasts Show India May Become World's Third Largest Economy by 2030 - VOA News https://www.voanews.com/a/forecasts-show-india-may-become-world-s-third-largest-economy-by-2030/6875735.html
[4] Indian Economy: Overview, Market Size, Growth, Development, Statistics...IBEF https://www.ibef.org/economy/indian-economy-overview
[5] India insight: $10 trillion GDP by 2030? Not quite, but almost - Bloomberg.com https://www.bloomberg.com/professional/blog/india-insight-10-trillion-gdp-by-2030-not-quite-but-almost/
[6] Is India the World's Next Great Economic Power? - Harvard Business Review https://hbr.org/2023/09/is-india-the-worlds-next-great-economic-power
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