How has India’s economy performed under the Modi era compared to the major advanced economies in the G7?

Background & History of G7

The Group of Seven (G7) is an informal forum that brings together Italy, Canada, France, Germany, Japan, the United Kingdom, and the United States of America. The European Union (EU) also participates, represented by the President of the European Council and the President of the European Commission. The G7 was established as a platform for economic and financial cooperation in response to the 1973 energy crisis, with the first summit held in 1975 in Rambouillet, France. Initially, the group included France, the United States, the United Kingdom, Germany, Japan, and Italy. In 1976, Canada joined, forming the current G7 configuration. Since 1977, representatives of the European Economic Community, now the European Union, have also participated in the group’s work, though the EU does not hold the rotating presidency of the G7. The G7 expanded to the G8 between 1997 and 2013 with Russia’s inclusion. However, Russia’s participation was suspended in 2014 following the annexation of Crimea.

Over the years, the G7 has progressively broadened its focus. Initially an ad-hoc gathering to discuss financial challenges, it has become a more formal venue addressing major global issues. This shift became more pronounced at the start of the new millennium when the G7 recognized the need for more detailed discussions on complex issues. As a result, it initiated thematic Ministerial. G7 also plays a crucial role in the international arena, upholding freedom, democracy, and human rights. The G7’s engagement with emerging economies and developing nations has evolved alongside its expanding agenda. A notable example was the 2001 summit, where Italy pioneered the “African segment,” featuring dialogue sessions between G7 leaders and representatives of invited African nations. This process has continued over the following decades, with the G7’s focus expanding to address a wide array of global issues, including the climate-energy nexus and food security.

India’s economy under the Modi era

Under Prime Minister Modi, India has emerged as a significant player in the global economy. Its increasing economic strength positions it at the centre of major global issues, while its robust democracy, highlighted by recent elections, makes it a crucial partner for the West. India’s economy is set to become the world’s fourth-largest, overtaking Japan, and will surpass all G7 countries except the US and Germany.

Following the G20 Summit in Delhi last year, India is striving to emerge as the leader of the Global South, a role that has gained importance amid climate change debates. In a symbolic gesture, Prime Minister Meloni decided to host the G7 Summit in the Apulia region of southern Italy, signalling a commitment to engaging with the Global South. India’s participation in this G7 Summit is particularly significant given its recent presidency of the G20, where India took a leading role.

As the West seeks to balance China’s economic and geopolitical influence, India’s role becomes increasingly crucial. G7 countries are looking to shift their economic ties away from China to more friendly nations, and India stands to benefit from this. G7 leaders have condemned China for its actions in the South China Sea, and India’s strategic position as a counterbalance to China enhances its role on the global stage, further solidifying its importance to the G7.

Amid the West’s opposition to Russia following its invasion of Ukraine, India maintains a neutral stance. With increasing Western concerns over China’s strengthening ties with Russia and potential military cooperation, India remains a crucial ally for the West despite its neutrality. During the G7 Summit, Prime Minister Modi met Ukrainian President Volodymyr Zelenskyy on the sidelines.

G7 vs India: Economic Outlook

In this article, we have delved into India’s economic journey under the leadership of Prime Minister Modi, which began in 2014, and compared it to the economic trajectories of G7 countries. We have also projected how this trend is likely to persist in the future. Since 2014, India has witnessed remarkable economic growth, propelled by a series of reforms and initiatives aimed at fostering development, improving infrastructure, and attracting foreign investment. Key initiatives like “Make in India,” “Digital India,” and the Goods and Services Tax (GST) have significantly contributed to a more robust and competitive economy. These reforms have helped India climb the ranks of the world’s largest economies and overtake Japan as the fourth-largest economy globally in the near future. This economic ascent places India ahead of all G7 countries except the United States and Germany, a testament to its potential and promise.

India’s economic growth has been accompanied by its increasing geopolitical importance. As the G7 countries seek to diversify their economic ties and reduce dependence on China, India’s stable democracy and growing market make it an attractive partner. India’s strategic position as a counterbalance to China enhances its role on the global stage, further solidifying its importance to the G7. This strategic alignment with the West reassures the audience about India’s commitment to shared values and interests.

Furthermore, India’s leadership in the Global South has become more pronounced. After hosting the G20 Summit in Delhi, India has emerged as a voice for developing nations, particularly in climate change and sustainable development discussions. This leadership is not only crucial but also a source of pride, as global dynamics shift and new alliances form, India’s influence and impact are set to grow, offering hope for a more balanced and inclusive global order.

The G7’s engagement with India also reflects the broader geopolitical landscape. The West’s concerns about China’s economic and military ambitions and Russia’s actions in Ukraine have made India’s neutral yet strategically aligned position valuable. India’s participation in G7 Summits, including recent meetings where Prime Minister Modi met with Ukrainian President Volodymyr Zelenskyy, underscores its pivotal role.

Looking ahead, India’s economic trajectory is expected to continue its upward trend. Projections indicate sustained growth driven by a young workforce, technological advancements, and continued policy reforms. This growth will further enhance India’s global influence, making it an indispensable partner for the G7 and other international coalitions.

The USA was controlling nearly 60% of the total GDP of G7 countries in 2023

Fig: 1

The United States continues to dominate all the G7 countries in terms of total GDP and is expected to maintain this leading position. In 2014, the US GDP was $17.6 trillion, projected to reach $35 trillion in 2029. As of 2023, Germany holds the second place among G7 nations with a GDP of $4.5 trillion, followed by Japan at $4.2 trillion and non-G7 member India at $3.6 trillion. The United Kingdom, France, Italy, and Canada follow with GDPs of $3.3 trillion, $3 trillion, $2.3 trillion, and $2.1 trillion, respectively.

Fig: 2

India, which was ranked seventh in 2014, ahead of only Canada, has seen remarkable growth and has climbed to fourth place in 2023. Projections indicate that by 2026, India’s GDP will surpass all G7 countries except the US. By 2029, India’s GDP is expected to reach $6.4 trillion and will secure second among these economic powerhouses. Despite this impressive growth, India’s GDP will remain approximately five times smaller than the US (fig: 1 & fig: 2).

India’s GDP growth outpaces all the major advanced economies in the G7

Fig: 3

From 2014 to 2023, India consistently achieved a higher GDP growth rate than all G7 countries, except during 2020, when the COVID-19 pandemic caused a significant global economic downturn. Despite this setback, India rebounded strongly, maintaining robust GDP growth even as European countries faced economic challenges between 2022 and 2023 due to the Russian-Ukrainian war. India’s projected GDP growth rate in 2024 is 6.8%, and after that, it is expected to remain around 6.5% between 2025 – 2029, while G7 countries are expected to grow below 3%, with Italy and Japan forecasted to have the lowest growth rates and the USA the highest among them (fig: 3).

India’s challenge in tackling low GDP per capita

Fig: 4

USA’s GDP per capita consistently led all G7 countries from 2014 ($55.3K) to 2023 ($81.6K) and is projected to nearly double this metric by 2029 ($100.6K). While Canada’s GDP per capita was close to the US in 2014, the USA’s rapid growth has widened the gap significantly, with other G7 countries showing little change in GDP per capita during this period. In 2023, Canada held the second position in terms of GDP per capita among the G7 countries with $55.3K, followed by Germany at $52.7K, the UK at $49.1K, France at $46.0K, Italy at $38.3K, and Japan at $33.8K.

Fig: 5

Despite India’s remarkable GDP growth in recent years, its GDP per capita remains significantly lower than all G7 countries. In 2023, India’s GDP per capita ($2.5K) was almost 14 times lower than Japan’s ($38.3K), which has the lowest GDP per capita among the G7, and nearly 33 times lower than the US ($81.6K), which has the highest GDP per capita among the G7. Projections indicate that this disparity will follow a similar pattern from 2024 to 2029 (fig: 4 & fig: 5).

Due to the pandemic, GDP per capita for all G7 countries and India dipped in 2020, and in 2022, European countries experienced another dip due to the Russian-Ukrainian war.

Inflation expected to hover around 4% in the coming years

Fig: 6

The inflation rate in India has consistently remained significantly higher than that of the G7 countries. During the COVID-19 pandemic in 2020, inflation rates remained low for all G7 countries. However, India’s inflation rate rose to 6.2%. In contrast, the G7 countries experienced an increase in inflation rates starting in 2021 due to the post-pandemic economic effects, which saw a dramatic spike in 2022 primarily due to the geopolitical tensions arising from the Russian-Ukraine war.

In 2022, the United Kingdom’s inflation rate surged to 9.1%, Italy and Germany experienced 8.7%, and the United States saw its rate rise to 8%. During this same period, India also increased its inflation rate, reaching 6.7%.

Looking to the future, the inflation rates for the G7 countries are projected to stabilize around 2%. On the other hand, India’s GDP growth rate is expected to remain around 4%. Among the G7 countries, Japan has notably managed to maintain a relatively low inflation rate compared to its counterparts, showcasing a more stable economic environment in terms of price levels (fig: 6).

What are the key challenges confronting India?

India’s economic landscape presents a mix of rapid growth and persistent challenges. Despite its impressive GDP growth and rising status as a global economic power, India faces several critical issues that need to be addressed to sustain its momentum and improve wealth distribution. Despite being on track to become the second-largest economy among the G7 countries by 2029, India’s GDP per capita remains significantly lower than all G7 nations, indicating stark wealth disparities.

India consistently experiences higher inflation rates compared to the G7, which could hamper economic stability and growth. Wealth distribution remains uneven, with significant portions of the population still living in poverty. The Indian economy is vulnerable to global events, such as the COVID-19 pandemic and the Russian-Ukrainian war, which have caused economic disruptions and inflation spikes. Inadequate infrastructure, including transportation, healthcare, and education, hampers sustainable economic growth and development.

Effective strategies and policies to address these issues

Implementing policies that focus on inclusive growth can help bridge the gap in GDP per capita. This includes progressive taxation, social welfare programs, and initiatives to boost rural and urban employment. Strengthening monetary policies and improving supply chain efficiencies can help manage inflation rates. The Reserve Bank of India (RBI) can play a pivotal role by adjusting interest rates and regulating money supply.

Investing in education and vocational training programs can enhance the skill set of the workforce, making it more competitive globally and reducing unemployment. Large-scale infrastructure projects, such as building roads, and ports, and improving healthcare facilities, can support long-term economic growth. Public-private partnerships can be leveraged to fund these initiatives.

Reducing dependency on any single sector by promoting a diverse range of industries, including technology, manufacturing, and services, can make the economy more resilient to global shocks. Emphasizing sustainable and green development practices can ensure long-term environmental and economic health. This includes renewable energy projects and sustainable agricultural practices.

Addressing these issues through strategic policy implementation and robust economic planning will be crucial for India to elevate its GDP per capita, manage inflation effectively, and continue its growth trajectory while ensuring that the benefits of growth are more evenly distributed among its population.

References

About Author:

Pankaj Chowdhury is a former Research Assistant at the International Economic Association. He holds a Master’s degree in Demography & Biostatistics from the International Institute for Population Sciences and a Bachelor’s degree in Statistics from Visva-Bharati University. His primary research interests focus on exploring new dimensions of in computational social science and digital demography.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of 360 Analytika.

Acknowledgement: The author extends his gratitude to the International Monetary Fund for providing data support.

This article is posted by Sahil Shekh, Editor-in-Chief at 360 Analytika.