By N Chandra Mohan
Despite weaker-than-expected nominal growth in gross domestic product (GDP) and depreciation of the rupee, there is no let-up in aspirational objectives of pegging the size of the Indian economy in US dollar-denominated terms. As the fifth-largest economy in the world, the narrative is that India is set to soon become the third-largest economy with a projected GDP of $7.3 trillion by 2030 and $30 trillion in 2047. However, becoming the fourth-largest economy by overtaking Japan has not happened as yet. India’s nominal GDP in April-September 2025 is $1.98 trillion as against Japan’s $2.13 trillion. This is due to the sharp decline of the rupee against the US currency unit that reduces the size of India’s dollar-denominated GDP.
While the latest GDP numbers indicate that the Indian economy is perhaps on track to hit $4 trillion this fiscal, they also strongly suggest that larger aspirational hopes may take a tad longer to be fulfilled. Look no further than the still-to-be-fulfilled ambition to become a $5-trillion economy, a hope that still burns bright among the ruling dispensation’s policymakers. This goal was first articulated by Prime Minister Narendra Modi in his Independence Day address after he secured a second term in 2019. In a first of sorts, the maiden Budget of Union Finance Minister Nirmala Sitharaman and the Economic Survey for 2018-19 shared this explicit vision statement to become a $5-trillion economy by FY25 from $2.83 trillion in FY20.
This doubling objective got off to a bad start due to the exigencies of battling Covid-19 that resulted in a contraction of GDP by 5.7% in FY21. At the end of the five-year period in FY25, the GDP only hit $3.91 trillion rather than $5 trillion. The goal posts shifted thereafter. Policymakers felt that this target was reachable by FY27 or FY28. The International Monetary Fund (IMF) earlier indicated that this was not likely till FY29 but these projections were corrected to suggest that it could be hit earlier. In February this year, India’s GDP was forecast by the Fund at $5.15 trillion for FY28. However, its latest projections now peg it at $4.96 trillion and $5.46 trillion in FY29. This ambition might thus be realised four years later than when the doubling was to have taken place.
Growth patterns and the rupee’s drag effect
The optimism of India’s policymakers around the $5-trillion economy is largely based on the fact of being the world’s fastest-growing large economy. But the doubling objective entailed nominal GDP growth in dollar terms of 14% per annum. A doubling of GDP had in fact taken place earlier in the four years from FY04 when growth hit 19% per annum to enable India to become a trillion-dollar economy in 2007-08. That sort of scorching pace has not been registered thereafter. As against the required rate of 14%, the pace of economic expansion averaged 6.9% in dollar terms over the five-year period. The rupee, for its part, depreciated from `74.2 to a dollar to `84.6 to a dollar over this period that reduced the size of dollar-denominated GDP.
Looking ahead, weaker-than-expected nominal GDP growth and a deprecating rupee in the future are bound to impact other aspirational objectives as well. If hitting $5 trillion is taking much longer than expected, this will also happen for the target of $7.3 trillion by 2030 and $30 trillion by 2047. The tepid on-year growth of 5.2% in dollar-denominated nominal GDP in the first half of this fiscal and 5.5% for FY26 as a whole clearly suggests that the objective of reaching $30 trillion by 2047 is simply not feasible. This entails the Indian economy’s size to be seven times larger than the $4.12 trillion currently and nominal GDP growth in dollar terms of 9.9% per annum over the 21-year period. This is mission impossible in a fragmenting world economy.
Shifting focus from dollar benchmarks to real growth
For such reasons, it makes better sense to move away from the dollar peg for India’s aspirations and focus on unleashing real rather than statistically-driven growth to truly become a global power. There is no doubt that the bullish real growth of 8% in the first half of this fiscal has a lot to do with an unusually weak GDP deflator. The gap between the nominal and real GDP growth has been narrowing due to this factor and can vanish with zero inflation! For unleashing real growth, there is a need to implement reforms of land, labour, and capital markets, besides providing fiscal support for $300 billion of investments every year in roads, railway infrastructure, seaports, airports, transport, gas, and inland waterways.
The Survey of 2018-19 talked of initiating a virtuous private investment cycle, like in East Asia, to drive sustained growth. This is only a work in progress as the animal spirits of entrepreneurs are low and must be revived. Investors, both domestic and foreign, want improvements in the ease of doing business on the ground and less regulatory and policy uncertainty. These have far more bearing for realising India’s economic ambitions than shifting the goal posts to be a $5-trillion or $30-trillion entity, for that matter.
The writer is an economics and business commentator based in New Delhi
