The power and pitfalls of India’s ascent to the fourth-largest economy

The pace of economic expansion has been remarkable.

There is justified national pride in the news that India has overtaken Japan to become the world’s fourth-largest economy. With a nominal GDP now estimated at over 4.19 trillion dollars, there lies a deeper and more difficult truth. Nominal rankings capture attention but they often blur the more important measure of economic wellbeing. India, despite this leap, still ranks a sobering 122nd in global per capita GDP. It trails behind countries like Vietnam, Sri Lanka and the Philippines and hovers just above Bangladesh. That is a reality we cannot afford to ignore.

This paradox lies at the heart of India’s economic challenge. We are a large economy, but not yet a prosperous one. And while aggregate size brings geopolitical weight and market clout, the lived experience of economic dignity for the average citizen is shaped by per capita income.

To be clear, the pace of economic expansion has been remarkable. In 2014, 67 years after Independence, India’s GDP stood at 2 trillion dollars. By 2021 it reached 3 trillion. In just four more years we have added another trillion. That is the power of compounding working in real time. If India maintains a growth rate of 7 percent annually, the next trillion could come in less than three years. These are not trivial achievements. They reflect strong fundamentals, relative macroeconomic stability and a growing appetite for reform and global integration.

But statistics can be deceptive when stripped of context. Growth must always be seen through a demographic lens. India’s challenge is not just to grow but to grow in a way that raises per capita incomes meaningfully. That is where the ‘denominator effect’ comes in. With a population of over 1.4 billion, any gains in output are divided across a vast and complex demographic landscape. Even if India were to double its GDP to 8 trillion dollars with today’s population, the per capita income would barely touch 5,000 dollars. That remains far from the threshold of middle-income prosperity. Our rise in the global rankings is real, but so is the mountain that remains ahead.

This is not cynicism. It is critique. And there is a difference. This perspective may be unpopular in celebratory moments, but it is necessary if India is to stay focused on the real task. We cannot escape our denominator effect. We cannot throw away our people. We must transform their participation in the economy from informal and underproductive to formal, high-value and resilient. That will require deep structural shifts in how we produce, employ, innovate and compete.

India’s economic structure needs to generate far greater value-added output across its three core engines: manufacturing, agriculture and services. Each of these sectors demands a different set of policy instruments, institutional reforms and political choices. Manufacturing needs infrastructure, competitive factor markets and regulatory simplification. Agriculture needs productivity enhancements, supply chain integration and land-use rationalisation. Services require human capital, digital acceleration and global linkages. In all three, the common thread is this: the reform agenda must now go from incremental to transformational.

That is not easy. It needs political will that can outlast electoral cycles. It needs a national consensus that puts long-term economic health above short-term populism. India’s journey to economic maturity will not be led from Delhi alone. It needs genuine and sustained collaborative federalism. The Union and the states must work as partners, not rivals. Too much of India’s policy bandwidth is lost to adversarial politics between levels of government.

Our founding compact as a republic expects equal opportunity for every Indian, regardless of where they live or who they are. That cannot be achieved unless resources, investments and reforms flow evenly across the country and unless state governments are committed, resourced and held accountable to drive outcomes on ground.

We need harmonisation of policies and alignment of priorities. India’s competitiveness cannot come from a few metropolitan enclaves. It must be built across the entire geography of the nation. The next phase of growth will depend on whether states can become laboratories of reform and engines of inclusive development. This will require institutionalising platforms for centre-state coordination beyond politics, particularly in domains such as skilling, health systems, climate resilience, energy transition and urbanisation. Without this, national goals will remain aspirational.

India’s global role also brings new responsibilities. As we rise in global rankings, expectations will shift - both externally as well as within our midst. India will be watched not only for how it grows but how it governs. How it balances economic ambition with social inclusion. And how it projects economic heft without abandoning democratic principles or institutional integrity. Strategic credibility in the 21st century will rest not only on GDP numbers but on governance depth, institutional resilience and the ability to deliver at scale.

The window for demographic dividend is open but not forever. We must use it to fundamentally reimagine what kind of economy we want to become. Not just a large one but a just one. Not just a fast-growing one but a high-quality one. Not just a globally admired one but a domestically empowering one.