Why India is important in the current global economy?
Why India is important in the current global economy?

Economic history shows that the global economy has progressed in the past depending upon the higher growth rate produced by some of the largest economies. In the first half of the last century, it was the higher growth rate of the US economy that contributed to the advancement of the global economy. Higher GDP growth and increased income in the US encouraged US imports from other countries. Exports to the US implies enhanced economic growth and increased income in other (exporting) countries.

In the last couple of decade, global economic growth was well supported by China’s gigantic growth rate of around 9%. But for China, there was a difference. Its growth was created by high level of domestic investment rather than high domestic consumption. This means when China invested, China produced and China exported. Here, the world economy while receiving Chinese goods has transferred income to China.

Now, Chinese economic growth is low at around 6.7%; which is the new normal for it. On the other hand, India has emerged as the new fastest growing economy among big economies (at a growth rate of around 7.6%).  

India’s share in world GDP and its contribution to global GDP growth rate

The change in this growth profile implies that India’s contribution to global economic growth has increased. In terms of Purchasing Power Parity GDP, China is the largest economy, US – the second largest and India is the third largest.

Share of India in global GDP has increased from 4.8% in 2001-07 to 7.0% in 2014-15 according to the Economic Survey 2016.

Here if China’s growth rate is 6.7%, its contribution will be the largest as it is the biggest economy. On the other hand, US GDP growth is around 1% and at this low rate, its contribution to increased World GDP will be low (even though it is the second largest economy). Here, India with 7.6% growth contributes larger than the US to world economic growth.


The Economic Survey 2016 observe that India’s contribution to global GDP growth in PPP terms increased from an average of 8.3 per cent during the period 2001 to 2007 to 14.4 per cent in 2014.The increased contribution by India to world GDP growth is due to the new rebalancing of China.

Another very important element of India’s growth is that it is achieving progress out of its own consumption rather than by depending upon world consumption. A low export share in the world indicate that India is self-dependent on deriving its growth from the consumption of its own people. If world economy comes under recession, it will severely affect China, but its impact will be not that much severe on India as Indian economic growth is domestic consumption driven.



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