December 20, 2016

India passes UK to become the fifth largest economy on a nominal GDP basis

The devaluation of the British pound has resulted in India's nominal GDP exceeding the UK. India is now the fifth or sixth largest economy in the world based on nominal (exchange rate) GDP UK, India and France are nearly tied based on exchange rate.

The value of the pound declined by 20% over the last 12 months.
UK’s 2016 GDP of GBP 1.87 trillion converts to $2.29 trillion at exchange rate of ~GBP 0.81 per $1.

India’s GDP of INR 153 trillion converts to $2.30 trillion at exchange rate of ~INR 66.6 per $1.

France has a GDP of about 2.22 trillion euro. This converts to $2.3 trillion at an $1.0389 per 1 euro.

Ranking from October, India seems to be passing both UK and France. There is still some fluctation in the currency but in a few months the higher growth rate for India should see a definitive passing

Projections to 2020 by Statistics Times

This gap is expected to widen as India grows at 6 to 8% p.a. compared to UK’s growth of 1 to 2% p.a. until 2020, and likely beyond. Even if the currencies fluctuate that modify these figures to rough equality, the verdict is clear that India’s economy has surpassed that of the UK based on future growth prospects.

India’s economic history over the last 150 years can be split into three parts:
a period of divergence,
of relative stagnation and
a period of convergence with respect to the economy of the UK.

Divergence begins with the UK’s industrial revolution in the 18th century to India’s independence in 1947 when the UK’s growth significantly outpaced India’s. The period of stagnation extended from 1947 to 1991 where both India and the UK grew at roughly the same rate.

Convergence began in 1991, when India finally implemented market reforms, and continues to this day. During this period India has experienced much faster economic growth than the UK and has finally in 2016 overtaken it in absolute terms, although is still less than one-fifth that of the UK in per capita terms.



This surpasso has three important implications.

1. it highlights India’s arrival on the global stage and a significant change in power dynamics between India and the west.
2. it should give India the ability to shed any residual notion of colonial inferiority and enable it to have a more open mindset and look at alternative nations to emulate. India could increasingly look at China, a country of similar population and closer to India’s own cultural tradition, as a model for its own economic growth
3. it should redouble India’s efforts towards furthering market reform given that India’s per capita GDP is still less than one-fifth that of the UK, highlighting the tremendous scope for further convergence.

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