December 03, 2015

India has a possibly lengthy journey to become the third largest world economy

India’s economy has been growing by 7.3 per cent in FY2015 as against 6.9 per cent in FY2014. The size of the Indian economy is estimated to be at Rs 129.57 trillion (US$ 2.01 trillion) for the year 2014 compared to Rs 118.23 trillion (US$ 1.84 trillion) in 2013.

India's currency the rupee has been weak for the last 4 years. The currency has moved from 45 rupees to 1 US dollar to 66 rupees to 1 US dollar.

On an exchange rate basis the Indian economy has lost ground with currency weakness offsetting all of its economic growth.

India is the third largest economy on a purchasing power parity basis.

For India to become the third largest economy on a nominal GDP (exchange rate) basis then the currency would have to hold steady or strengthen against the other currencies. India would have to pass Japan, Germany, UK and France to get to third place.

The IMF is projecting no nominal GDP growth for Japan and Germany and a 50% improvement for India from 2014 to 2019. If those trends were to happen and continue then India would be in the range of third largest world economy on a nominal basis in the 2025-2030 timeframe. The IMF projects the UK to continue to grow on a nominal basis.

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