India's Economic Surge: Robust Growth Propels Nation Toward Global Top 3

India's economy has grown rapidly, with GDP exceeding USD 3.7 trillion, driven by robust GST collections and sustained growth above 8%. The nation is projected to become the world's fourth-largest economy by 2025, overtaking Japan.

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Aqsa Younas Rana
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India's Economic Surge: Robust Growth Propels Nation Toward Global Top 3

India's Economic Surge: Robust Growth Propels Nation Toward Global Top 3

India's economy is experiencing a remarkable transformation, driven by robust GST collections, sustained GDP growth exceeding 8%, and the rise of digital public infrastructure. The nation's estimated GDP has soared to an impressive USD 3.7 trillion, positioning it as the fifth-largest economy globally. Amitabh Kant, India's G20 Sherpa and former CEO of Niti Aayog, projects that India will overtake Japan to become the world's fourth-largest economy by 2025.

Why this matters: India's rapid economic growth has significant implications for global trade and investment, as it is likely to alter the dynamics of international economic relationships. As India's economy continues to rise, it may also lead to a shift in global economic power structures, with potential consequences for international relations and geopolitics.

Several key sectors have contributed significantly to India's economic growth, with notable double-digit growth observed in steel, cement, and automobile manufacturing. The implementation of the Goods and Services Tax (GST) in 2017 has revolutionized the indirect tax landscape, with gross GST collections exceeding ₹20 lakh crore in FY24 and an average annual growth of nearly 13% since its introduction. Direct tax collections have also seen a 200% increase in the last ten years, rising from ₹6.38 lakh crore in 2013-14 to ₹19.18 lakh crore in 2023-24.

Kant attributes India's firm growth to several macroeconomic parameters, including record GST collections, over 8% GDP growth in the past three quarters, trading in Indian currency Rupee with 27 countries, and inflation at manageable levels. The country has also seen global leadership in digital public infrastructure, with e-transactions surging to 134 billion, accounting for 46% of all global digital payments. "The successes in the indirect tax regime have been significant. The implementation of GST has effectively unified the indirect tax system," stated Pratik Jain, Partner with PwC India.

India's growth rate of 7.2% in FY23 was the second highest among G20 countries and almost twice the average for emerging market economies. The International Monetary Fund (IMF) forecasts India's GDP growth rate to reach 6.8% in FY25, citing bullish domestic demand conditions and a rising working-age population. Real GDP grew at 8.4% during the December quarter, beating consensus projections of 6.8%.

The government has introduced various digital initiatives to streamline tax compliance and curb evasion, including digitization for e-filing and digital payments, real-time data sharing to detect tax frauds, faceless assessment and appeals, and dispute resolution schemes like Vivad se Vishwas. The Common GST Portal has simplified tax filings, while E-invoicing and E-way bills have streamlined the movement of goods. "Tax compliance has improved notably through digitised returns and data auto-population from E-Invoicing/EWBs," added Jain.

Despite the impressive progress, challenges persist in India's tax system. Taxpayers still struggle to understand the complex GST structure, with issues arising from intricate tax rate structures, taxation on consideration-less transactions, and uncertain application of pre-GST decisions under the GST framework. Concurrent investigations by various authorities and vague notices lacking detailed reasoning disrupt the business environment. The non-constitution of the Goods and Services Tax Appellate Tribunals has become a serious concern for taxpayers.

India's economic transformation over the past decade has been remarkable. Just ten years ago, the nation's GDP ranked 11th globally, and it was part of the "Fragile 5" economies alongside Brazil, Indonesia, South Africa, and Turkey. However, through sustained efforts and reforms, India has emerged as a global economic powerhouse, overtaking the UK in 2022. Finance Minister Nirmala Sitharaman expects India to become the world's third-largest economy within a year or so, while Prime Minister Narendra Modi targets this milestone by 2029.

As India continues its upward trajectory, the Ministry of Finance predicts the nation's GDP to reach USD 5 trillion in the next three years and USD 7 trillion by 2030, eventually becoming a developed economy by 2047. The investment to GDP ratio has increased to 34% and is expected to rise further to 36% by FY27, driving growth. Domestic demand has been a key driver, propelling the economy to a 7+ growth rate in the last three years. With the right

Key Takeaways

  • India's economy is projected to overtake Japan's by 2025, becoming the 4th largest globally.
  • India's GDP has reached $3.7 trillion, with a growth rate of 7.2% in FY23, second highest among G20 countries.
  • Robust GST collections, sustained GDP growth, and digital public infrastructure drive India's economic transformation.
  • India's digital payments have surged to 134 billion, accounting for 46% of global digital payments.
  • The government targets India to become the 3rd largest economy by 2029 and a developed economy by 2047.