EDITORIAL 2: Health of India’s economy
Context
On July 30, United States President Donald Trump announced 25% tariffs on India, as well as an unspecified “penalty” for buying military equipment and energy from Russia.
Rejected the claim
- Union Minister of Commerce & Industry Piyush Goyal rejected the claim, saying India had gone from being one of the ‘fragile five’ to the fastest-growing major economy in just over a decade.
- He said India had moved from being the 11th largest economy to among the top five and was expected to become the third largest soon.
- According to him, international bodies and economists saw India as a bright spot in the global economy, contributing about 16% of global growth.
- The government had implemented transformative measures to promote India as a manufacturing hub.
- He said the country’s skilled youth were driving innovation and competitiveness, and exports had been increasing steadily for the last 11 years.
What the data says
- Data from the IMF for a range of countries since 1995 contradict that claim.
- The data revealed that India, China, and Russia were the top three in terms of GDP growth over the past 30 years.
- The US economy had quadrupled, but its close allies like the UK had grown less than three times, and Germany had not even doubled.
- Japan’s GDP in 2025 was lower than in 1995, making it a better example of a “dead” or even “decaying” economy. In contrast, India’s economy had grown nearly 12 times in the same period.
- When comparing growth relative to the US, only China, India, and Russia had increased their share.
- India had risen from being less than 5% the size of the US economy in 1995 to nearly 14% in 2025, while America’s allies had all declined in comparison.
The issues
- Despite overall growth, India had not maintained the rapid pace seen before the 2008 Global Financial Crisis.
- Since 2014, growth had averaged around 6%, lower than the 8%-9% seen earlier.
- India’s growth also lagged behind China’s; while India doubled its GDP in 11 years, China had done so in just 4 years from 2004 to 2008.
- In terms of global trade, India’s share remained small — 1.8% of goods exports and 4.5% of services exports.
- One sign of economic weakness was India’s need to protect many sectors in trade. Agriculture faced ongoing distress, with many farmers living at subsistence levels.
- A large share of India’s population remained in agriculture due to the failure to significantly boost manufacturing.
- Despite GDP growth, the quality and distribution of growth were uneven, leading to rising inequality and continued poverty.
- About 24% of the population still lived below the World Bank poverty line. This figure was only slightly better than in 2011-12, when 27% of Indians were considered poor.
- Inequality had increased significantly, and human development indicators like health and education remained poor.
- A mismatch between skills and job opportunities meant that higher education often led to higher unemployment.
- Women’s participation in the workforce was among the lowest globally, and even when rising, the jobs were low-quality and paid poorly.
- Despite this, India had rapidly transformed from being one of the ‘fragile five’ to the fastest growing major economy in the world in just over a decade.
- In the last decade, the government has taken transformative measures to promote India as the manufacturing hub of the world.
Concerns for India
- While India’s overall GDP has grown, its growth rate has lost a step since 2011-12, and failed to replicate the spurt of fast growth — averaging 8%-9% — that was witnessed before the Global Financial Crisis of 2008-09. Since 2014, India’s growth rate has hovered around 6%.
- India also has not achieved the pace of growth that China did during its own journey. By comparison, China’s GDP raced from $1.9 trillion to $4.6 trillion in just four years, from 2004 to 2008.
- In terms of trade — India’s share is just 1.8% of total global exports of goods, and just 4.5% of total global exports of services.
- One sign of weakness in the economy is the fact that there are many sectors that India wants to protect when it comes to international trade.
- India’s farm economy is plagued with distress, with the bulk of the farmers living at subsistence levels.
- The reason why the bulk of India’s population is still engaged in the rural and farm sectors is the failure to boost manufacturing.
- Further, despite overall GDP growth, the quality of growth and its distribution is acutely skewed, leading to widening inequalities and persistently high poverty.
- Twenty-four per cent of the population is below the World Bank poverty line for India.
- Data on inequality also show an alarming rise. And on human development metrics such as health and education, the situation is concerning.
- A stark skills mismatch means that unemployment in India rises to very high levels with rising educational attainment. And female participation in the economy is among the lowest in the world — even when it is rising, the quality of work is of the poorest quality with low and stagnant wages.
Conclusion
Despite challenges like inequality, slow manufacturing, and rural distress, India’s economy is far from “dead.” It has grown nearly 12 times since 1995 and is now among the top five globally. While reforms are needed for more inclusive growth, the data clearly contradict claims of economic decline.