Picture used for illustrative purposes.
India surpassed the UK to become the fifth largest economy in the world, according to reports on Saturday. Britain has dropped behind India to become the world’s sixth largest economy, according to Bloomberg.
India toppled the UK from its position in the final three months of 2021 to become the fifth-biggest economy. The calculation is based in US dollars, and India extended its lead in the first quarter, according to GDP figures from the International Monetary Fund.
The IMF’s own forecasts show India overtaking the UK in dollar terms on an annual basis this year, putting the Asian powerhouse behind just the US, China, Japan and Germany. A decade ago, India ranked 11th among the largest economies, while the UK was 5th.
The UK’s decline down the international rankings is an unwelcome backdrop for the new Prime Minister. Conservative Party members choose Boris Johnson’s successor on Monday, with Foreign Secretary Liz Truss expected to beat former Chancellor of the Exchequer Rishi Sunak in the run-off.
The winner will take over a nation facing the fastest inflation in four decades and rising risks of a recession that the Bank of England says may last well into 2024.
By contrast, the Indian economy is forecast to grow more than 7 per cent this year. A world-beating rebound in Indian stocks this quarter has just seen their weighting rise to the second spot in the MSCI Emerging Markets Index, trailing only China’s.
The calculations were done using the IMF database and historic exchange rates on the Bloomberg terminal.
The UK is likely to have fallen further since. UK GDP grew just one per cent in cash terms in the second quarter and, after adjusting for inflation, shrank 0.1 per cent. Sterling has also underperformed the dollar relative to the rupee, with the pound falling eight per cent against the Indian currency this year.
India is expected to become world’s third largest economy by 2029 due to the path taken by the country since 2014, SBI Ecowrap report said. The share of India’s GDP is now at 3.5 per cent, as against 2.6 per cent in 2014 and is likely to cross 4 per cent in 2027, the current share of Germany in global GDP.
India has undergone a large structural shift since 2014 and is now the 5th largest economy.
Interestingly, India had surpassed UK as the 5th largest economy as early as December 2021 itself and not recently as is being claimed.
“The path taken by India since 2014 reveals India is likely to get the tag of 3rd largest economy in 2029, a movement of 7 places upwards since 2014 when India was ranked 10th. India should surpass Germany in 2027 and most likely Japan by 2029 at the current rate of growth,” the report said.
“In coming days India is likely to be the beneficiary as China slows down in terms of new investment intentions,” the report added.
India’s GDP growth in Q1FY23 was 13.5 per cent. At this rate, India is likely to be the fastest growing economy in the current fiscal. Interestingly, even as estimates of India’s GDP growth rate for FY23 currently range from 6.7 per cent to 7.7 per cent, we firmly believe that it is immaterial.
“In a world that is ravaged by uncertainties, we believe 6 to 6.5 per cent growth is the new normal. Nevertheless, we make a passionate urge to update the IIP basket that is composed of a 2012 set of products and is hopelessly outdated.”
Union Finance Minister Nirmala Sitharaman recently revealed that India’s Gross Domestic Product (GDP) will grow at 7.4 per cent in FY 2022-23 and continue at the same level in FY24 as well.
The finance minister’s projection for the present and upcoming fiscal came months after the National Statistical Office (NSO) released GDP figures for the fourth quarter of 2021-22. The numbers, issued on May 31, showed that the country’s economic growth or GDP slipped to 4.1% in the said quarter, while the annual growth was recorded at 8.7%.
Meanwhile, UK stocks closed higher on Friday but fears around surging inflation, a looming recession and the policy direction under a new prime minister set to be announced on Monday drove weekly losses for the main indexes.
The blue-chip FTSE 100 rose 1.9% but suffered its worst weekly showing since June 24 with losses of nearly 2%.
The domestically focussed midcap index gained 1.9% to snap a nine-day losing run, which was its worst since the height of a pandemic-induced selloff in 2020. It posted a 1.7% weekly loss.
Polls put Foreign Secretary Liz Truss ahead in the race to become Britain’s new leader. She has based her campaign on promises to slash taxes but is yet to detail how she will tackle soaring energy bills. Some economists say her plans will stoke already-high inflation and force the Bank of England to raise interest rates even faster.
“The sheer scale of the energy bills that are likely to hit next year suggests that this (tax cuts) will need to be coupled (or replaced) with additional direct payments to households across the income spectrum,” ING economist James Smith said.