More strong GDP data from IndiaーNHK WORLD-JAPAN NEWS

Key Concepts

• Nominal GDP: The total value of goods and services produced in a country, measured at current prices.
• Domestic Demand: The total demand for goods and services within a country.
• Personal Consumption: Spending by households on goods and services.
• Goods and Services Tax (GST): A comprehensive, multi-stage, destination-based tax levied on every value addition.
• China Plus One: A business strategy to reduce reliance on a single country (China) by diversifying supply chains.
• Make in India: A national initiative to encourage manufacturing in India.
• Economic Security: Ensuring the stability and resilience of a country’s economy.

India’s Economic Growth and Global Engagement

The Indian economy demonstrated robust growth, with a nominal Gross Domestic Product (GDP) increase of 7.8% from October to December 2025. This growth positions India near Japan in terms of economic size, with India rapidly closing the gap. Japan’s nominal GDP for the previous year was approximately $4.4 trillion. Notably, Japan was surpassed by Germany as the world’s fourth-largest economy in 2023, and the International Monetary Fund (IMF) projects India will overtake Japan to become the fifth-largest economy this year.

Government Strategies for Economic Expansion

The Indian government unveiled a draft budget in February focused on bolstering domestic demand through increased infrastructure investment and income tax cuts. A key policy implemented in September involved significant reductions and simplifications to the Goods and Services Tax (GST), a move experts believe effectively stimulated consumption. Personal consumption currently accounts for approximately 60% of India’s GDP.

Demographic and Consumption Drivers

A primary driver of India’s economic growth is its substantial domestic demand, fueled by a population exceeding 1.4 billion. India surpassed China as the world’s most populous nation in 2021. The country benefits from a relatively young population, with an average age of 29, contributing to a large and available labor force. Increasing numbers of middle-income earners are driving demand for services and durable goods like automobiles and home appliances.

Regional Disparities in Economic Benefit

While economic development is evident, its benefits are not uniformly distributed. Urban areas, such as New Delhi and Mumbai, are experiencing significant gains, but approximately 60% of the population residing in rural areas feel left behind. Delays in developing essential agricultural infrastructure – including irrigation, distribution networks, electricity, and groundwater access – are hindering productivity in rural regions. The average income in rural areas is estimated to be only about one-third of that in urban centers, exacerbating the income gap.

Japan’s and Other Countries’ Engagement with India

India is attracting increasing global attention, particularly from Japan. Approximately 1,400 Japanese companies currently operate in India, a five-fold increase over the past 15 years. This surge is driven by Japan’s strategy to reduce its economic dependence on China for the sake of economic security. In 2023, Japan and India committed to investing around 10 trillion yen over the next decade, underpinned by their “special strategic and global partnership.” Cooperation is focused on advanced technologies, including semiconductors and artificial intelligence (AI).

India’s Long-Term Economic Vision

India aims to become an advanced economy by 2047, coinciding with the 100th anniversary of its independence. Prime Minister Narendra Modi is actively promoting manufacturing through the “Make in India” initiative. The “China Plus One” strategy, where countries diversify their supply chains away from sole reliance on China, is also benefiting India, positioning it as a potential new manufacturing hub, particularly for high-tech products like smartphones.

India as an AI Powerhouse

India is actively encouraging the development of data centers and aspires to become a leading force in Artificial Intelligence, a field currently dominated by competition between the US and China.

Challenges and Risks to India’s Growth

Despite its potential, India faces significant challenges. Inadequate infrastructure in rural areas, including insufficient electricity and water supplies, hinders the establishment of semiconductor plants. Poor road infrastructure complicates the transportation of goods and raw materials. Furthermore, complex administrative procedures related to taxation and licensing, along with a perceived lack of transparency in law enforcement, pose risks for businesses.

Future Outlook and Strategic Partnerships

India is projected to surpass Japan as the world’s fourth-largest economy this year. The speaker emphasizes the need for Japan and other countries to engage with India strategically and from a long-term perspective, fostering partnerships based on mutual complementarity in technology and investment. As stated, “Japan and other countries need to engage with it more closely from a long-term perspective as we call partners that complement each other.”