India’s GDP Has Not Overtaken Japan to Become 4th Largest and May Not Even by End 2025

India’s GDP Has Not Overtaken Japan to Become 4th Largest and May Not Even by End 2025

Hi, I’m Karan Harper. Over the last few years, I hope you’ve been watching my program, The Interview on the Wire. During that period, I’ve interviewed doctors, politicians, businessmen, scientists, authors, and even the occasional noble laurette. For me, it’s been exciting. I hope it’s been enjoyable for you. But these, as you know, are tough times. And if this program is going to remain bold, independent, and sometimes even defiant, then I think we need your support. At the end of the day, it’s a truism, but editorial independence is best defended by the viewers. So, if you would like this program to remain the way it is, forthright, outspoken, and interesting, then would you consider supporting us? All you have to do is to click on the description at the bottom. But more than anything else, I hope you will continue to watch the interview. Your viewership means an awful lot to me. Hello and welcome to a special interview for the wire. Are the prime minister and the CEO of NITIO correct in claiming that India has already overtaken Japan and become the fourth largest economy in the world or could they have jumped the gun by 6 months? Beyond that, are there reasons to question the IMF’s projections on which this claim is based? And if those reasons are justified, where does the claim that India will become the fourth largest economy in December 2025 actually stand? Those are the key issues I shall discuss today with the former professor of economics at Johar Alheru University and the author of the Indian economy’s greatest crisis, Professor Arun Kumar. Professor Kumar, let’s start with the claim made both by the prime minister and the CEO of Niti Aayog that India has overtaken Japan and is now the fourth largest economy in the world. This is based upon IMF projections. But the IMF makes it clear this will happen at the end of financial year 2025 which is only as far as the IMF is concerned December 2025. It hasn’t happened as yet. Doesn’t that mean that both the prime minister and the CEO of Niti Aayok have jumped the gun? They should have waited 6 months more. Or as Karan you say it’ll happen in December. They could have been more accurate in saying it will happen at the end of the year. That would have been more accurate you know because what is happening is that the IM is projecting these figures on the basis of the trends in the past few years and on the basis of the data that has come in for 2425 and the final data for 2425 will come only today. So it has not yet come. They may have some advanced information about it but still any projection has to be made on the basis of the past growth and the current year’s uh actual GDP. So they could have said it’ll happen at the end of the year but they can’t say it has already happened. So you agree that a they jumped the gun and b they were roughly 6 months ahead of time. Absolutely. Absolutely right. Now second, even when India overtakes Japan in terms of the overall size of its GDP, the important point to remember is that its per capita income will be only 113th of Japan’s per capita income calculated in nominal dollar terms. Isn’t that more significant than the absolute size of the GDP? You are right because the absolute size of the GDP depends on the number of people you have and the per capita income that they have. Per capita income represents the welfare of the people. So if a country has a much larger per capita income that means the welfare there is better and the welfare can be measured in a variety of ways. So the average Indian is much poorer than the average Japanese. So as you say 113th of the size of Japan because the size being the same the population being 113th it the per capita income becomes 113th and therefore in education in health in R&D and so on Japan is much better off than India. So coming to the same GDP does not mean that we are much better off or we are the same as well off as Japan. So I’ll just underline that point. We may inch ahead of Japan in terms of the absolute size of our GDPs, but in terms of the actual standing of the people in terms of per capita income, Japan is 13 times ahead of us. That’s right. That’s right. So they’re much better off and tech, you know, to be developed, we need technology and in technology we are way behind the advanced countries. So even if we have a higher GDP than say Japan or France or Britain but in technology terms and welfare terms we are much behind those countries. Thirdly on the face of it India’s GDP at 4.187 trillion seems large but how much of that is a reflection of the fact that we have a population of $1.4 billion the largest in the world. So as I was saying per capita income multiplied by the population is what gives you the total GDP. So if you have a much larger population roughly 13 times the Japanese population that’s why we equal them even though our per capita income terms we are much poorer. And the other factor that’s very essential in this is what is the unemployment in the economy because if you have unemployment that means people have to support each other. There’s a dependency ratio. those who are employed have to support the unemployed. Japan has a much lower unemployment rate than India has and that to the official data shows that the unemployment is only 8% but if you go by the ILO data and by other uh you know uh international data then the unemployment of different kinds which is there is much larger in India. In other words, even though we have a large population but those who are working, those who are earning and supporting the family, they are fewer. So the labor force participation rate as it’s called you know of the relevant age group of 15 to 64 how many people are working that’s the labor force partipation rate Japan has a much higher labor force partipation rate than India even though their older older population is much larger which means that the number of people working and earning you know as a percentage of the family that’s greater in Japan than in India and therefore the prosperity level also becomes greater India’s labor force participation rate as per the government’s offshall data is about 55 58%. But you know other big economies like USA, Brazil etc. they have a labor force participation rate of roughly about 65 to 70%. And if you go by the ISO definition then our labor force partition rate is only about 47%. So in other words we have 13 14% less people working. So even though we have a larger population but the number of people working that being fewer you know that reflects on the welfare of the family. Absolutely. But the key point that you agree with is that our GDP of $4.187 trillion may seem large, but it’s a reflection of the fact we have the world’s largest population as well. Absolutely right. Absolutely right. Now, in an article that you have written for the wire, you raised a few concerns about the claim that India’s GDP will overtake Japan’s. Let’s come to those concerns and let’s take them up one by one. First you point out that the IMF projection is based upon Indian government data. So doesn’t that mean that any errors that exist in India’s data will also get reflected in IMF data? Am I right in saying that? Yes, you’re absolutely right. You know, collecting data is a huge issue because there’s so many sectors, there’s so many subsectors, you have to collect data from everywhere. You know even if you take the primary sector agriculture itself is divided up into so many different uh sectors industry is divided up and no other agency than the government can actually collect the data. So the IMF, the World Bank, the ADB they take the government data whichever government it is you know uh so Indian data also is taken from the government data. So any errors in the government’s data will also be there in the IMF data. Of course, what the IMF and the World Bank do is tweak it a little bit here and there, but broadly if you see their rate of growth will be exactly the same as the government’s data plus minus a little bit.1% here and there. So in other words, the errors are replicated in the IMF World Bank data because they’re not the data gathering agencies. Let’s said at this point, Professor Kumar, come to the reasons why Indian data is sometimes considered less than reliable. First of all, the estimate for the GDP for the unorganized sector, which is pretty close to 45% of the economy is calculated as a proxy of the GDP for the organized sector. But both demonetization and the lockdown have badly affected the relationship between the organized and the unorganized sectors. Consequently, you believe that today any calculation of the unorganized sector using the organized sector as a proxy is not going to be accurate and reliable. It will be questionable at best. So, uh Karan, you’re right and let me try and explain a little. You see, the economy is divided up between the public sector and the private sector. The public sector is entirely organized because the data for that comes. The private sector has the organized component and the unorganized component and the unorganized component is huge. You know like farming is one component of that and there are variously estimated to be 8 cr or 11 cr farmers. Measuring what they’re producing is a huge challenge. Then in the industrial sector or the non-aggricultural sector there are 6 cr micro units 6 lakh large six uh 6,000 large units and only six lakh small and medium units. Now you can get the data from the medium units and the large units but getting from the small units and from the micro units of which there are six cr is a huge challenge. So what is done is that the unorganized sector data is proxied. You know you you have to have a method for estimating that and the method is that you look at the data of the organized sector and assume that the unorganized sector is also behaving the same way. Now that may have been true before demonetization because demonetization hit the unorganized sector very hard. Uh unorganized sector works with cash. Organized sector can work with banking with electronic money and so on but the unorganized sector doesn’t. So the unorganized sector got hit very hard. Large number of units closed down. And then this shock led to the second shock very soon after the GST shock. The GST also you know though even though it exempted the unorganized sector from GST but the the unorganized sector could not get the input credit and without the input credit its cost rose. So therefore the organized sector was better off able or more able to take care of itself and I’ll only give the example from the pressure cooker industry. Mr. Jaganathan of the pressure cooker industry uh you know chairman of the the association he said we are 20 uh 20 30 units five in the large scale and 25 in the small scale and the five we are growing at 24% because the unorganized sector the small scale is unable to cope with GST so demand has shifted to us now this has happened in the case of trade also you can see for instance you know e-commerce is growing so so so let’s not get lost in detail basically saying The relationship between the organized sector and the unorganized sector was badly affected a byolitization then by GST then by the lockdown. Therefore using the organized sector as a proxy for the unorganized sector no longer works. Correct. So so the this proxying the unorganized sector by the organized sector doesn’t work with organized sector been growing at the expense of the unorganized sector. So the organized sector is growing fast. The unorganized sector is declining. And you have evidence for that from various sectors. And this means in turn that we don’t really have an accurate idea of how the unorganized sector is performing. And that is at best a guess rather than an accurate idea. And when the IMF uses our data, they’re reflecting the same inaccuracies in their own data. Absolutely right. And also what happens is that a declining sector is being proxied by a rising sector and therefore the GDP is getting overestimated because that’s very important to say that it’s getting overestimated because if you proxy a declining sector by a rising sector then you’re doing damage. So in other words the unorganized sector is invisibilized in our data. Absolutely. And what you’re saying is because we are proxying the unorganized sector on the basis of the organized sector, we’re getting a false idea of how well the unorganized sector is doing, it’s not doing as well. And that in turn means that the GDP is being overestimated. And that in turn means that when the IMF takes our data and projects on the basis of that data, the IMF is also overestimating our GDP. Is that right? Correct. Correct. Yes. Let’s come to a second reason why you question the 2025 GDP figure and that’s because it’s only a preliminary estimate at this stage based on data for a part of the year. You point out finality will only happen 2 years later which is to say in 2027. Is it the case that between now and when we reach finality in 2027 the actual 2025 GDP figure could change? It could either grow more than we thought it would or it could be smaller than we thought it would be. Both are possible. Yes. So you’re absolutely right. You know when the data is given uh only quarterly data is available. So therefore you from that projections are made for what’s called the first advanced estimate. then a second advanced estimate and then there’s a revised estimate and then only the final figures come. So all this process takes up to two years and there are major changes that take place. So for instance if you look at the 1516 uh 1617 data initially in the first advanced estimate it was given as 7.1%. In the end finally it became 8.3%. Now that’s also surprising because in demonetization we saw large number of industries closed down and yet it was 8.3%. And that’s because it was based entirely on the organized sector not the unorganized sector. But if you look at the 201920 data initially it was given as 5% and then finally it turned out to be 3.9%. So it was down by 1.1%. Similarly, and what you’re saying is that if similar deviations or fluctuations happen in the case of the 2025 data, either our economy could end up being larger by a percent or two or could be smaller by a percent or two. Absolutely right. In other words, at this moment in time when we just have the first estimate of GDP for 2025, we don’t really know what the final figure will be cuz we only know in 2 years time. And that’s when we can accurately say whether we have overtaken Japan or failed to do so. Absolutely right. So we have the second advanced estimate at the moment only and we’ll have some figures uh today. But the point is that it can be revised and you know for 2223 it was revised downward from 7.6% to 7%. This is the most recent estimate that’s available where a 6% revision downwards there. Whereas the gap is only 014%. So a 6% deviation downward will mean we have not yet crossed the you know Japanese economy’s GDP. Now you also argue that because GDP estimates are based on a projection from the previous year any shock that the economy experiences such as demonetization GST and the lockdown could affect GDP calculations. Am I right in saying that a that sort of shock will affect the way you measure and you account for the GDP and secondly how long does the effect of that shock last? How many years into the future does it go? So you know as I was mentioning we basically use the data from the past and we use what’s called the benchmark indicators you know because the unorganized sector data is not available all the time. So we take take a reference here. In the reference here we calculate what the unorganized sector organized sector and we create a benchmark and we use that benchmark till the next survey data comes right now that benchmark gets changed because the unorganized organized sector ratio changes because of the shock we saw for demonetization for GST for NBFC crisis and then for this and then it’s projected you know in fact I have the thing if I can read it out it says a key indicator or a set of key indicators for which data in volume or quantity terms is available on quartly bas basis that is what is projected. So if you’re projecting from the year which was didn’t have a shock to the year where there’s a shock you are not going to get the correct data and then you use the same data for the next year after the shock and because the data for the shock year is incorrect the data for the next year will also be incorrect. So it has a sort of multiply effect. Yeah it’s a chain effect where you know one error will lead to the second error to the third error. And then what we’ve had is we’ve had different kinds of shock. So demonetization is a different kind of shock than GST. So the kind of correction that is needed is different for demonetization. It’s different for GST and it’s different for the lockdown period. So we needed to revise our methodology. We needed to revise our base year calculations so that next year’s data can be correctly calculated. We haven’t done this revision as a result of which the implication of those shocks continues to distort GDP data. Absolutely right. and and because one after the other shocks came we can’t say how much effect of the demonation is still there how much effect of the GST is still there post the covid and then the covid shock so we need to revise our estimation method all of which underlines the fact that India’s GDP calculation is less than reliable and since the IMF uses India’s GDP to make its own projections even IMF projections as a result will reflect the same lack of reliability less than at this joint professor Kumar come back to the IMF. The IMF in its projection hasn’t taken into account the fact that because of President Trump’s tariff policy, the world is passing through uncertainty which threatens both inflation and recession. Therefore, the projected 0.014% difference in GDP between India and Japan could easily turn out to be incorrect. It could be more. It could be less. The uncertainty President Trump has introduced means that this difference of 0.014% could be eliminated. It could be exaggerated. We just don’t know. You’re absolutely right. You know, there’s too much uncertainty uncertainty especially since October when it was sort of becoming clear that Trump may actually uh become the president of the US. Uh and you know, the stock markets were reacting to it. You know, the other markets were reacting. the dollar, parity with the other currencies was there, gold, everything was there. So there’s worry that there would be inflation with the tariffs. Okay, there’s also worry that it could lead to recession in the world economy because when there’s inflation and wages don’t rise, demand falls. There’s also worry that supply bottlenecks will be there because you know differential tariffs would be there on different countries. All these things together made a very uncertain world and the IMF’s data itself on a page 3 1.4 four chart 1.4 shows that the huge rise in uncertainty in economic terms in the entire you know trade terms and in the entire economy. Now given the uncertainty we don’t know which economy will be affected how much by these tariffs by these uh trade negotiations that are going on or as you know the courts have blocked the you know tariffs at present but the but President Trump will surely appeal so we don’t know given all that you know we don’t know how what impact will it produce on different countries the rates of growth also on the dollar rupee parity or the dollar yen parity I I’ll come to the dollar rupee parity in a moment much time but let’s first stick to the point you’re making. The difference or rather I should say the projected difference at the end of 2025 between India’s GDP and Japan’s GDP is just 0.014%. I repeat that cuz it’s very very small 0.014%. And the uncertainty that President Trump has introduced could easily either exaggerate this difference or eliminate it. We just don’t know. So it’s possible that President Trump’s created uncertainty could mean that come the end of the year 2025 that’s projected increase in the Indian GDP may not happen. It may be still smaller than Japan’s or it may be much bigger than we thought it would be. President Trump’s uncertainty is something the IMF hasn’t taken on board. Yes. So while in the chart they reflect that but in calculation of the GDP growth rates they haven’t taken that into account and with the growth rates that will change because the investment pattern in the world is changing. Okay. Let’s then come to the point you were making about the exchange rate because one more point which the IMF has overlooked is precisely this. When the Indian and Japanese GDPs are compared we have to first convert rupees and yen into dollars. Now depending upon how the exchange rate fluctuates in both cases that could further complicate the situation couldn’t it and that difference which is a very small difference in their GDPs of 0.1 sorry 0.014% could get eliminated or it could get reversed or it could get increased. Once again uncertainty is there because we don’t know how the exchange rates either the dollar versus the rupee or the dollar versus the yen will fluctuate. So you’re absolutely right Karan I mean there are several factors which determine the exchange rates of different countries you know but at the moment uncertainty you know the price of gold uh the fact of differential inflations these are the important factors that will affect the exchange rate parity between dollar and yen and dollar and the rupee. Now in any international comparison you have to convert the GDP to dollar terms so as to make it comparable. You can’t compare the yen GDP with the rupee uh GDP you know. So therefore in this conversion you need the parity and that parity will get affected by the nature of trade the impact on our trade the impact on our currency and so on and so forth. So in other words the uncertainty is huge. IMF flags that in its graph but doesn’t take that into account in terms of making the calculations and therefore this 0.014% difference could be easily overwhelmed by the nature of inflation and the currency depreciation. Let’s then finally come to your conclusion and I’ll quote what you’ve written in your wire article. You say there is a need to reassess the claim that India’s GDP is growing fast and will cross that of Japan in 2025. Your conclusion clearly suggests you don’t believe we will overtake Japan at the end of 2025. Am I right? Yes, you are correct. Because if my hypothesis there’s the unorganized sector that’s declining, the organized sector is rising. So our GDP data reflects the rise of the organized sector but doesn’t take into account the decline in the unorganized sector and even the data from agriculture the agriculture experts say the data is faulty because if you look at last year when the government said there was a bumper crop in spite of the bumper crop prices were rising then they they reduced stockholding limits and still the prices rose then they banned export and still the prices rose. So many agriculture experts say even the agriculture data is incorrect. Unorganized sector non-aggriculture we know that the data is incorrect because that data is not collected and there’s a decline in major sectors whether you look at FMCG whether you look at you know trade sector leather good sector major other sectors also. So in other words the rate of growth which is six and a half% average over the last 10 years possibly is more like 2%. If it’s 2% and there’s a gap of 4% between what’s happening and what the government’s projecting, it means there’s a 42% difference in the GDP between what possibly is there and what the government is projecting. So in which case we would not have crossed Japan. We end therefore with two crystal clear conclusions. The first which we reached right at the start of this interview is India as of now today the 30th of May has not overtaken Japan. It is not the fourth largest economy in the world. It’s projected to overtake Japan and become the fourth largest economy towards the end of 2025, somewhere around December 2025. But the second conclusion we’ve reached is that you believe because of the uncertainties in the way India’s GDP is calculated that even come December 2025, you personally believe India will not overtake Japan. That difference of 0.01 014% in India’s favor is unlikely to happen. Am I right? Yes, I I agree. I agree with your conclusion. Thank you, Professor Kumar. Thank you very much for taking time out to talk to me and to explain this subject so clearly, so comprehensively. Take care. Stay safe. Thanks a lot, Karan. Thanks for having me. Hi, I’m Karan Taper. Over the last few years, I hope you’ve been watching my program, The Interview on the Wire. During that period, I’ve interviewed doctors, politicians, businessmen, scientists, authors, and even the occasional noble laurette. For me, it’s been exciting. I hope it’s been enjoyable for you. But these, as you know, are tough times. And if this program is going to remain bold, independent, and sometimes even defiant, then I think we need your support. At the end of the day, it’s a truism, but editorially dependence is best defended by the viewers. So, if you would like this program to remain the way it is, forthright, outspoken, and interesting, then would you consider supporting us, all you have to do is to click on the description at the bottom. But more than anything else, I hope you will continue to watch the interview. Your viewership means an awful lot to me.

India’s GDP has not overtaken Japan to become 4th largest and may not even by end 2025: Prof. Arun Kumar, former Professor of Economics, Jawaharlal Nehru University, to Karan Thapar for The Wire.

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One of India’s respected economists has categorically said that as of today (May 30th 2025) India’s GDP has not overtaken that of Japan to become the 4th largest in the world. The claim that it has done so is based on IMF projections and the IMF has made it clear this will only happen at the end of financial year 2025 which, for the IMF, is December the 31st, 2025. Prof. Arun Kumar says both the Prime Minister and the CEO of Niti Aayog jumped the gun when they claimed that India has already overtaken Japan to become the 4th largest economy in the world. They should have waited for approximately six months. That is what the IMF projections state.

However, Prof. Arun Kumar, this time expressing his personal opinion, believes that even by the end of December 2025 India is unlikely to overtake Japan’s GDP and become the 4th largest economy in the world. This is because of the many concerns and questions about the way India calculates its GDP. In turn, the IMF uses India’s GDP to make its projections and any errors or inaccuracies in the way India calculates GDP will, therefore, also be reflected in the IMF projections.

I will stop there and allow you to find out the reasons why Prof. Arun Kumar is skeptical of India overtaking Japan and becoming the 4th largest economy even by the end of December 2025 by watching the interview for yourself. His answers are detailed, factual, often reliant on percentages and figures and, therefore, you need to hear him directly. This is an interview you need to concentrate on. It is not difficult to follow but you do need to make an effort to understand the many points Prof. Kumar is making.

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