India Drops to Number 7th in Global GDP Ranking

Amid a devastating second wave which has infected 10m Indians with Covid19 in only 29 days, comes the news that India has slipped to number 7th in global GDP rankings due to shrinkage in its economy in the year 2020. The pandemic has claimed 278751 lives till May 17 and nearly 4000 people have lost their lives daily in the month of May. Though the Central Government has not imposed a national lockdown this year but most of the populous states, barring Madhya Pradesh, have declared restrictions to control the spread of the virus scuttling business and trade activities. 

The country’s central bank, the Reserve Bank of India, has calculated that the impact on the business activity is not as severe as it was in 2020, but many sectors have been crippled due to the latest restrictions which are harming the economy. Several global agencies and banks have already concluded that the growth in the country’s GDP this year may be restricted to single digits once the picture becomes clear.

In 2005 India entered the list of the world’s top ten economies at number 10 as the GDP growth hit over 8% in two successive years. In 2009 when the global economies were hammered by the meltdown in US banking sector, India weathered the storm by infusing huge amounts of cash in its rural economy by waiving farm loans. By 2011 it was the third largest global economy as widely reported by the media quoting World Bank analysis. But it has been a downward journey in the last ten years. In 2018 it slipped to 5th rank and now after its GDP shrank by more than 7% in 2020, India is at number 7 as reported by the International Monetary Fund’s latest reports.

Though RBI reports that the supply side is strong due to its fiscal interventions, the demand this time is plummeting as people struggle to buy goods and services. The Government has announced long term mega infrastructural projects to restart the economic cycle, but it appears that people have lost purchasing power due to a long hiatus in incomes. Government data shows that while the economy shrank by 7.2% in Financial Year 2020-21, the per capita income growth was reduced by 8.9% which explains why there is reduced demand in the market currently.

Economists have argued with the government over direct financial benefits for the people, but of no avail so far. It is clear that along with the life of its people, India is also losing its economic clout in the world.