Will India Surpass Japan as the Third Largest Economy?

Posted by: on Oct 18, 2011 | No Comments

India is all set to become the world’s third largest economy soon, measured in terms of gross domestic product (GDP), by overtaking Japan in the next few months. At present, India is the fourth largest economy after the US, China and Japan. Figures from 2010 reveal that the Japanese economy was estimated to be worth $4.31 trillion, with the Indian economy closely following at $4.06 trillion. However, the colossal earthquake and tsunami that hit Japan in March is expected to help bridge this gap fast. Japan’s economy is projected to contract at a rate of 0.7%, while India’s economy could expand by as much as 8% this fiscal year. International Monetary Fund previously reported that it would not have been possible for India’s economy to surpass Japan’s before 2013-14 had it not been for the natural calamity.

Major Factors for Indian Economy’s Strength

Higher foreign direct investment has been one of the principal reasons for India becoming an economic superpower during the recent years. Relaxation of licensing requirements and removal of restrictions on expansion has encouraged more FDI companies to participate in the Indian economy. The industries that attract maximum overseas investment are telecommunications, pharmaceuticals, IT and auto components.

Increased participation is global trade is another reason for the strength of the Indian economy. Isolated from the world market till 1991, the adoption of globalization has made India a key participant in international trade. The top trading partners of the nation at present are the US, the EU and UAE.

Growth of banking and financial institutions in the country is another factor that has propelled the economy forward. In 1969, the Indira Gandhi government nationalized 14 banks. Thereafter, it was mandated that each bank uses 40% of its total net credit towards the development of other industries and sectors. During the recent decades, a significant improvement in branch delivery helped increase the overall bank deposits, thus aiding general economic advancement.

Finally, the progress in India’s agriculture sector has had a significant impact on the economic situation of the country. India currently has the second largest farm output in the world. The farming sector, along with forestry, logging and fishing, account for as much as 18.6% of the nation’s GDP. Moreover, the “primary industry” employs 60% of the country’s total workforce. Some key export revenue generators of the primary industry are cotton, rice, black pepper and cashew nuts.

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