India has grown rapidly despite its slow
industrialization, and its economy is now nearly as big as Japan’s.
1.
Strong
GDP Growth:
India
expanded by 7.5% last year,
maintaining its position as the world’s fastest-growing large economy for the
fourth consecutive year, driven partly by manufacturing.
2.
Missed
Fourth-Place Ranking:
Despite expectations of surpassing Japan
in 2025, India remained the fifth-largest economy in dollar terms due to a weak
rupee and relatively strong yen.
3.
Outperformance
in Growth Terms:
Japan grew only 1.1% in
2025, while the three largest economies — the United States, China, and Germany — also recorded
slower growth than India.
4.
IMF
Projection:
The International Monetary
Fund projects India will surpass Japan in 2026.
5.
Rapid
Economic Expansion:
With growth above 6–7% annually since 2021, India’s economy is doubling roughly
every decade.
6.
Structural
Characteristics:
o Dominated by thousands of small businesses
employing most workers.
o Increasing growth concentration among
large conglomerates and family-run firms.
7.
Rise
of Financial Sector:
Sanjiv Bajaj
transformed Bajaj Finserv
from $550 million under management in 2007 to $53 billion today, reflecting the
growing dominance of finance over manufacturing.
8.
Digital
Transformation Impact:
Government-backed biometric IDs and digital payments reforms have expanded
banking access. India’s digital payments system now processes 20 billion transactions per month,
enabling large-scale credit expansion.
9.
Manufacturing
Challenge:
Under Narendra Modi’s
2015 “Make in India” campaign, manufacturing was targeted for expansion.
However, its share of GDP fell from 16%
to 13%, far below China’s 25%.
10. Income Disparity:
o Average Indian income: ~$2,900 annually.
o Average Japanese income: 12× higher.
o Average German income: 21× higher.
Around 800 million Indians
still rely on free government food grain support.
11. Inequality Concerns:
High inequality limits consumer demand, complicates public spending on health
and education, and restricts inclusive growth.
12. Export and Industrial Base:
Bajaj Auto
produces 4.5 million motorcycles and auto rickshaws annually, nearly half
exported to countries such as Indonesia, Egypt, and Mexico.
13. Geopolitical & Trade Vulnerability:
India’s inward-focused economy has limited leverage in global supply chains,
especially during trade tensions involving former U.S. President Donald Trump.
14. Long-Term Vision:
Prime Minister Modi aims to make India a fully developed nation by 2047, but achieving this
will require faster, more broad-based industrial growth.
India remains the
fastest-growing major economy and a rising global power, but structural
imbalances — especially weak manufacturing growth and high inequality — could
determine whether it achieves developed-nation status in the coming decades.
India,
the world’s fastest-growing large economy for four years in a row, released data
on Friday showing that it expanded at a rate of 7.5 percent last year, driven in
part by strength in manufacturing.
Many
economists, and India’s government, had expected India to become the world’s fourth-largest
economy in 2025, overtaking Japan in size. Instead, with the Indian rupee weak against
the dollar and Japan’s yen relatively strong, India’s economy stayed a step behind
when measured in dollar terms.
But
in terms of growth, India far outperformed Japan, which grew only 1.1 percent in
2025. The three largest economies — the United States, China and Germany — all grew
more slowly than India last year.
India
became the world’s fifth-largest economy four years ago, pushing aside Britain,
its former colonial ruler. The International Monetary Fund has projected that India
will nudge past Japan in 2026.
The
strong growth last year underscores India’s place as one of the world’s most consequential
centers of economic gravity, despite breaking every rule about how countries are
supposed to modernize. Its rise up the league table of economies has given it geopolitical
clout and drawn interest from investors. Yet the shape of its progress is unique.
With India’s economic power growing even faster than its population — now more than
1.4 billion people, larger than any other country’s — India is on a course all its
own.
The
country’s thousands of small businesses hire most of its workers, but an increasing
share of growth has come from its biggest companies. Dynastic family firms play
an outsize role at every scale, from conglomerates like Mukesh Ambani’s Reliance
Group to industry-specific companies.
Sanjiv
Bajaj, a scion of a 100-year-old family business with roots in the automotive sector,
has had a ringside view of India’s growth. Mr. Bajaj, 56, split off the Bajaj group’s
financial services operation from Bajaj Auto in 2007. Bajaj Finserv started with
$550 million under management and now controls $53 billion. Its own market value
has grown 377 times over.
Much
of the company’s success can be traced to India’s policies to modernize technology.
In the past decade, the government has pushed biometric IDs and digital payments,
pulling a majority of India’s adults into the banking system. India’s own digital
payments system now processes 20 billion transactions a month. Most amounts are
tiny, Mr. Bajaj said, but the sheer size of the country’s population means that
even small shifts in behavior turn into tremendous moneymaking opportunities.
All
of that data, Mr. Bajaj said, “allows us to look at every small shop owner and see
his inflows and outflows every day.” His company can now make lending decisions
at an enormous scale, bringing millions of Indians into the formal credit system,
he said.
Among
the world’s economies, the United States and China are way ahead in terms of size,
ahead of Germany, Japan and India, all in a tight cluster, by about four to six
times.
India
has been holding tight to its position as the fastest-growing large economy since
2021. With annual growth of more than 6 or 7 percent, it doubles in size every decade,
while Germany, Japan and most other rich countries struggle to hit yearly growth
of 2 percent.
Germany
and Japan have over decades become manufacturing powerhouses that have lifted their
populations out of post-World War II poverty.
India
is still poor. The average Japanese income is 12 times the Indian average. The average
German’s is 21 times as great. Indians on average have incomes of only about $2,900
a year, and the country’s top-heavy economy means most of its citizens make far
less.
The
contrasts can be shocking. In India, billions of dollars are being invested to build
data centers, and airports are sprouting everywhere, even as about 800 million people
depend on the government for free sacks of grain.
India’s
inequality leaves most of a billion people in a state of subsistence, and it hobbles
the country as a whole. Social divisions deepen, it becomes harder to fund public
health and education — and it gets much tougher for consumer-facing companies to
turn a profit.
But
for businesses like Bajaj Finserv, Mr. Bajaj estimated, the better-off 400 million
Indians are a great opportunity in their own right. No other country except China
has so large a group of consumers, he said.
Narendra
Modi, India’s prime minister since 2014, said he intended to transform India into
a fully developed country by 2047, the 100th anniversary of its independence. That
won’t happen unless the country’s growth speeds up to the kind of pace China achieved
earlier this century.
Since
the Industrial Revolution, no other place has shot up the top-tier rankings except
through the power of its factories. China, factory to the world, devotes 25 percent
of its economy to manufacturing. When Mr. Modi announced a Make in India campaign
in 2015, manufacturing accounted for 16 percent of the economy. Since then, it has
fallen to 13 percent.
That
is barely more than in the United States, which is called a postindustrial economy.
As is the case in America, India’s economy is driven by its services, led by high-value
work like chip design, computer engineering and office work for multinational companies,
and powered by transportation and trade in goods.
The
evolution of the Bajaj family business illustrates the point.
Bajaj
Auto was much bigger than Bajaj Finserv when the companies split ways, but now the
banking company is 50 percent larger. Finance, not factories, has been the hotter
sector in India, as it is in the United States.
But
Bajaj Auto has also grown, in keeping with the industrial part of India’s economy.
It produces 4.5 million motorcycles and auto rickshaws a year, nearly half for export
to countries like Indonesia, Egypt and Mexico.
The
mixed quality of India’s economy has helped it weather storms like the financial
crisis of 2008, but it also made the country vulnerable during trade negotiations
with President Trump. Focused mainly on serving its own immense population, India
found itself without any bargaining chips in global supply chains.
The
three cities in the world with the most skyscrapers under construction in 2025 were
all in India. The tallest of those buildings, however, the 56-story Palais Royale
in Mumbai, is stalled, under construction since 2008. India is in a mode of making
tall promises, and delivering on them sporadically.
“Directionally,
India is in a very exciting place. It’s screwed up, sure, but we’re in a very interesting
position for the next 10 to 15 years,” Mr. Bajaj said. Its young people, perhaps
especially those from disadvantaged backgrounds, he continued, are “bright, and
hungry,” and before long they will become part of the world’s third-largest economy.