Economy: India to surpass Japan in FY26, says Sanjeev Sanyal

Virendra Pandit

New Delhi: India is set to emerge as a USD 4 trillion economy in 2024-25 and surpass Japan by early next fiscal (FY26) to become the world’s fourth largest economy, Sanjeev Sanyal, a member of the Economic Advisory Council to the Prime Minister (EAC-PM), said on Thursday.

A 7 percent economic growth rate will be ‘very good’ for India, given various constraints, including the country’s weak exports, he hoped.

“So, this financial year, we will become a USD 4 trillion economy,” Sanyal said at an event in the national capital, the media reported.

Recently, Finance Minister Nirmala Sitharaman said that India is expected to overtake Japan and Germany to emerge as the world’s third-largest economy by 2027.

Currently, in US dollar terms, India is the fifth largest economy with a size of about USD 3.7 trillion in nominal terms.

Sanyal said Japan is now just a little ahead of India, at USD 4.1 trillion.

“So, either very early next year or even you know this year, we will cross Japan to become the world’s fourth largest economy,” Sanyal added.

Germany is a USD 4.6 trillion economy and it is not growing, which makes it static, he said.

“Maybe in two years, we will go past Germany. So, I think in terms of becoming the world’s third largest economy, we are reasonably now close to the target,” he said.

Sanyal argued that the government should not push any fiscal move to accelerate economic growth to 8-9 percent.

“If you get it, great, but anything around 7 percent compounded over time is a very good growth rate. “We shouldn’t get too excited about 9 percent,” he said.

Sanyal said compounding of growth is the single most important thing as this will generate jobs and taxes.

While the Asian Development Bank (ADB) and Fitch Ratings have estimated India’s growth at 7 percent, the International Monetary Fund (IMF), S&P Global Ratings, and Morgan Stanley projected a 6.8 percent growth rate for FY25.

“Do not get emotional about trying to hit a very high growth rate in any particular year,” he emphasized.

There are other countries, such as those in Southeast Asia, which were in India’s position in the mid-1990s.

“You will remember Indonesia, Thailand, and so on, and for a while, they were doing very well. And then it all blew up in the Asian crisis,” he said.

Sanyal emphasized that there is no need to mess around with the financial system trying to support growth.

“Do not mess around with your fiscal system, your monetary system, your current account, and so on,” he said.

Responding to a question on the internationalization of the Indian rupee, Sanyal said it is about converting the rupee into a hard currency.

“We only aspire over the next decade or so to become a hard currency. We are not attempting to become the world’s anchor currency,” he added.

Sanyal said India’s limited purpose is to convert the rupee into a hard currency over the next decade in terms of its wider usage as the currency in which people trade, in particular, the country’s own trade.

“It is a currency in which other governments in the world hold their reserves in terms of being a part of the IMF SDR basket. So, that is a limited objective,” he said.

The government has already taken a few steps, including an inflation rate targeting mechanism.

“…So that the Indian rupee essentially becomes a commonly used hard currency, at least for things relating to India,” he added.