Economy Poised to Reach $5 Trillion by 2026, Predicts Economist Arvind Panagariya

India has recently secured its position as the world’s fifth-largest economy, following the USA, China, Japan, and Germany. Economist Arvind Panagariya expressed optimism on Friday, suggesting that India could potentially claim the spot as the world’s third-largest economy by the end of 2026, a timeline sooner than many current predictions.

Panagariya, a former Vice Chairman of NITI Aayog and currently an Economics professor at Columbia University, pointed out that over the past two decades, India has sustained an impressive annual average growth rate of 10.22 percent in current dollars. Based on this growth trajectory, he projected that India’s GDP in current dollars could reach $5 trillion by 2026 and $5.5 trillion by 2027.

As of now, India holds the fifth position globally, with GDP figures for 2022 standing at $3.4 trillion, while Germany and Japan reported $4.1 trillion and $4.2 trillion, respectively. Panagariya highlighted Japan’s unusual downturn in 2022, attributing it to a substantial appreciation of the dollar against the Japanese yen. He emphasized that the dollar’s value at the end of 2022 was 13.9 percent higher than at the beginning of the year.

Regarding Germany, Panagariya noted its current economic challenges, with the IMF predicting negative growth in real terms in the euro. While high inflation and the euro’s appreciation in 2023 are expected to provide some assistance, he projected a modest growth in Germany’s GDP to $4.4 trillion. However, with inflation likely to decline sharply in the coming years, the GDP in current dollars is anticipated to grow at a maximum of 4 percent annually.

Panagariya emphasized the need for India to realize its economic potential by implementing reforms that encourage the growth of small habitations, farms, and enterprises. He advocated for measures that would enable larger economic units in industry and services, creating job opportunities and facilitating the migration of workers from rural to urban areas. This, he believes, would increase land per worker in farming and concentrate the population in urban agglomerations, allowing for the replacement of smaller economic units in various sectors.