June 2, 2025

Current Affairs

India becomes the World’s Fourth Largest Economy

Context: NITI Aayog CEO B.V.R. Subrahmanyam recently claimed that India has overtaken Japan to become the world’s fourth-largest economy, sparking debate as others questioned the accuracy of this data.

Relevance of the topic:

Prelims: Key facts about GDP Calculation methodologies.

Mains: Limitations of using nominal GDP as a measure of economic development.

India’s rise in the nominal GDP- IMF data:

As per the new estimates of the Gross Domestic Product (GDP) of various countries for 2024 by the International Monetary Fund (IMF):

India’s GDP in 2025 is likely to be $4,187 billion ($4.18 trillion), marginally higher than the GDP of Japan at $4,186 billion.
This makes India the fourth largest economy of the world in 2025 after the U.S., China and Germany. It is estimated that India could grow to be the third largest economy of the world in 2028.

India’s actual position in the global economic order can be understood by distinguishing between nominal GDP and Purchasing Power Parity (PPP).

Nominal GDP

Nominal GDP is the total value of goods and services produced in a country, measured at current market prices in US dollars. It does not adjust for inflation or differences in cost of living in different countries.

Nominal GDP is not always the right metric because of:

Exchange Rate Distortions: Recent claims that India has overtaken Japan are based on nominal GDP data, which is vulnerable to short-term currency movements. Changes in exchange rates can artificially inflate or deflate a country’s GDP without any real change in economic output. E.g., a weaker rupee can make India’s GDP appear smaller in dollar terms even if domestic production increases. This makes it an unreliable metric for comparing economies across countries.
Ignores differences in Cost of Living: Nominal GDP does not reflect how much people can actually buy with their incomes. E.g., $1 buys a lot more in India than in the U.S. or Japan due to lower costs of goods and services.
Overlooks Per capita disparities: A higher nominal GDP does not mean higher income per person. E.g., In 2025, India ranks 4th and the UK ranks 6th in nominal GDP. Yet, India's per capita income is just $2,879, while the UK's is $54,949.

Nominal GDP comparisons are not as meaningful because they miss out on the purchasing power aspect. It is for this reason that the IMF also calculates GDP based on Purchasing Power Parity.

Purchasing Power Parity (PPP)

GDP at PPP compares the relative value of currencies by measuring what the same amount of money can buy in different countries. E.g., A person working in Delhi may earn less than a friend working in Paris, but the Delhi resident can afford many services- like cooking, cleaning, or dental care- at much cheaper rates.

PPP offers more accurate picture of economy as:

Unlike nominal GDP, PPP is not affected by changes in exchange rates, giving a more stable and fair comparison over time.
PPP adjusts for differences in cost of living and inflation between countries, providing a more accurate picture of real purchasing power.
PPP better reflects the true economic well-being of people, as it compares income based on local prices, not just dollar values.

IMF data shows that India became the third-largest economy by PPP as early as 2009, overtaking Japan.

Challenges:

In GDP in PPP terms, even though India has improved over the years, its rank or relative position has not changed.
In terms of per capita GDP based on PPP, India languishes far below the world average. In terms of market exchange rates, India’s rank in per capita GDP in 2024 was 144th among 196 countries. Even in terms of PPP international dollars, India’s rank in per capita GDP in 2024 was 127th among 196 countries.

A much better way to assess India’s relative development may be to compare the set of indicators beyond GDP (like HDI Index, State of Multidimensional Poverty, Hunger Index, Gender Inequality Index etc.) to get a meaningful measure of economic performance and social progress.

India’s global economic standing is undoubtedly rising, but rankings based on nominal GDP alone provide an incomplete picture. True development lies in raising per capita incomes, reducing inequality, and enhancing human development indicators.

Growth in India’s Telecom and Internet Sector

Context: In the India Mobile Congress (IMC) 2025, the Minister of Communications announced that India is the second largest telecom market in the world and will have 1 billion internet users by the end of FY26.

Relevance of the Topic:Prelims: India’s Telecom & Internet sector- Key Trends and Govt. Initiatives.

Growth in India’s Telecom and Internet Sector:

In the last decade-

India became the second largest telecom market in the world. India’s mobile market witnessed a growth from roughly 1 billion to 1.2 billion customers.
The Internet market has grown from around 250 million to 974 million subscribers.
The broadband market, with speeds greater than 2 Megabits per second (Mbps), has grown from 66 million (2014) to 940 million in 2025. India is expected to hit one billion Internet users in 2026.
Rise in Affordability: Call prices are down from 50 paise per minute to 0.003 paise per minute; data from 1 GB at ₹287 to ₹9 per GB. India is the cheapest data market in the world; the global average is $2.49 per GB.
Growth in manufacturing: From importing 80% of mobile phone requirements to exporting ₹1.75 lakh crore worth of mobile phones.
Patents of 6G: India ranks among the top six countries globally in terms of 6G patent filings. Bharat 6G Alliance is working to contribute a minimum 10% of 6G patents to the world.

Government Policies that contributed to the growth:

Universal Service Obligation Fund (Digital Bharat Nidhi): USOF is funded by a 5% Universal Service Levy on telecom operators' Adjusted Gross Revenue to finance telecom expansion in rural areas. Digital Bharat Nidhi aims to ensure transparent management and targeted deployment of the funds.
BharatNet: Ambitious project aimed at providing affordable high-speed broadband connectivity to all Gram Panchayats (GPs) in India. It is the largest public sector investment in connectivity to the grassroots level costing over $16.9 billion.
- In the first phase, almost 7 lakh kilometres of fibre optic cables were laid and 2.14 lakh gram panchayats were connected.
- The ongoing BharatNet II project aims to connect the remaining gram panchayats.
Advanced technology inBharatNet II:
- Use of Multiprotocol Label Switching (MPLS) routers instead of Gigabit Passive Optical Network (GPON) routers for higher redundancy levels.
- Ring topography instead of linear topography to prevent incidents of single breakage disrupting all the downstream gram panchayats.
- Central network operating centre to monitor and maintain the network throughout the country.
- Provide an Internet leased line with a minimum speed of 25 Mbps to every subscriber.
PM-WANI (WiFi Access Network Interface): To proliferate broadband access through public Wi-Fi networks and create a robust digital communications infrastructure in India, especially in rural areas.
Bharat 6G Alliance: Launched in 2023 by DoT, it is a collaborative platform that brings together the government, industry, and academia to develop 6G technology in India. It is working to contribute a minimum 10% of 6G patents to the world, development of at least one new radio technology originating from India, and creation of at least 10 standard essential patents (SEPs).
PLI Scheme for Smartphones: India has become a key player in global smartphone exports. Handsets are now the second highest exported products from India. As a result, India has come a long way from importing 80% of mobile phones to exporting ₹1.75 lakh crore worth of mobile phones (~$20 billion).

Also Read: India ranks among top six nations globally in 6G patent filings

India needs to increase investment in research and development (R&D) to become the creators and innovators of global products in the telecom space.

SC recent judgment and deviation from POCSO Act

Context: Recently, the Supreme Court of India declined to impose a sentence on a man convicted under the Protection of Children from Sexual Offences Act, 2012 (POCSO Act), noting that the victim did not view the incident as a crime.

Relevance of the Topic: Prelims: Key facts related to POCSO Act.

Protection of Children from Sexual Offences (POCSO) Act:

The POCSO Act, enacted in 2012, aims to protect children (anyone under 18 years) from sexual abuse and exploitation.
It criminalises both penetrative and non-penetrative sexual assault, sexual harassment, and child pornography.
It is a gender-neutral law, protecting both boys and girls.
POCSO deems all minors under 18 incapable of ‘consent’, and any sexual activity with a person under 18 is automatically considered abuse, even if the child agrees.
The Act mandates child-friendly procedures like special courts, in-camera trials, and video-recorded testimonies.
With strict penalties, a presumption of guilt on the accused, and time-bound trials, the Act aims to fill critical legislative voids and deliver swift, victim-centric justice.

Controversial ruling by the Calcutta High Court

Earlier, the Calcutta High Court overturned the conviction of a man under the POCSO Act, claiming his relationship with a 13-year-old girl seemed consensual. The HC further recommended legislative amendments to exclude consensual relationships from POCSO’s ambit.
The judgment attributed ‘adolescent sexuality’ to climate change, food habits, early puberty, and a “taboo-free atmosphere” influenced by social media and pornography.
This ruling was controversial because POCSO clearly states that minors cannot legally consent.

How has SC deviated from POCSO in a recent judgment?

The SC in a suo motu proceeding set aside the Kolkata HC’s ruling, reaffirming that POCSO does not recognise ‘consensual sex’ with minors and its objective must not be diluted.
However, exercising Article 142 (extraordinary jurisdiction), the SC withheld sentencing of the convict and directed the West Bengal government to ensure the welfare and rehabilitation of the victim and her child.

Article 142:

Article 142 empowers the Supreme Court to ‘pass any decree or make any order as is necessary for doing complete justice in any cause or matter pending before it’.
However, the term ‘complete justice’ is not defined.
This power is exclusive to the Supreme Court, not available to High Courts or lower courts.
It is a special and extraordinary jurisdiction used only in exceptional cases where strict adherence to existing laws may lead to injustice.
Orders passed under Article 142 are final and binding on all authorities and courts across India.

The SC withheld sentencing not to dilute the POCSO law, but because the victim's situation was highly complex and humanitarian concerns were involved. The apex Court emphasised that the unusual deviation from the child protection law in this case must not set a precedent.

However, any such exception risks weakening the core intent of the POCSO Act to protect minors from sexual exploitation. Opening the door to exceptions could lead to widespread misuse, with perpetrators hiding behind the guise of ‘family protection’ to exploit vulnerable girls.

This judgment reopens the debate to reconsider the POSCO Act to non-criminalise consensual romantic relationships between adolescents.

Also Read: POCSO Act and Criminalisation of adolescent sex

Govt. meets 4.8% Fiscal Deficit target for 2024-25

Context: The central government managed to meet the fiscal deficit target of 4.8% of the GDP for 2024-25, according to the provisional data released by the Controller General of Accounts.

Relevance of the Topic: Prelims: Fiscal Deficit- Concept and Key Trends.

What is Fiscal Deficit?

Fiscal deficit is the difference between the government's total expenditure and its total receipts excluding borrowing.
Fiscal deficit arises due to either increase in expenditure or shortfall in revenues.
Fiscal deficit can be financed through:
- issuing new currency or printing money
- borrowing from the central bank (RBI)
- borrowing from domestic markets (via instruments like treasury bills and bonds).
- borrowing from foreign sources.

Govt meets 4.8% Fiscal Deficit target for 2024-25

Fiscal Deficit target (FY 2024-25): Budget 2024-25 had a fiscal deficit target at 4.4% of GDP. The revised estimates (RE) had a fiscal deficit target at 4.8% of GDP.
The central government managed to meet the fiscal deficit target of 4.8% of the GDP. The fiscal deficit stood at Rs 15.77 lakh crore, or 100.5% of the revised annual target. The target was met due to:
- High dividend from RBI (Rs 2.11 lakh crore in FY24)
- Robust direct tax collection (witnessed a robust growth of ~15.6% )
- Controlled revenue deficit
- Expenditure management in subsidies and capital expenditure.

Also Read: Fiscal Deficit

India’s GDP growth slows to 6.5% in 2024-25

Context: The Ministry of Statistics and Programme Implementation (MoSPI) has released the provisional estimates of economic growth for FY25. India’s GDP growth rate in FY25 hit a four-year low of 6.5%, slowing down sharply from the 9.2% growth recorded in FY24.

Relevance of the Topic: Prelims: GDP Growth- Trends, Components, Factors affecting GDP Growth rate.

How is Economic growth measured?

Economic growth is measured using two metrics.

Gross Domestic Product (GDP) is calculated by adding up all the expenditures made in the economy, including expenditures by Indians in their individual capacity, expenditures by governments, expenditures by private businesses, etc. This provides a picture of the demand side of the economy.
Gross Value Added (GVA) looks at the supply side. It effectively measures the contribution of each sector of the economy by calculating and summing the value added (or income) at each stage of production.

Both GDP and GVA are linked: they measure the same economic performance but through different routes. Their relationship can be spelled out using the following equation:

GDP = (GVA) + (taxes earned by government) - (subsidies provided by government)

MoSPI provides GDP and GVA data both in nominal terms (in present day prices) and real terms (after taking away the effect of inflation). Both nominal and real data have their own analytical significance.
For any financial year, GDP estimates go through several revisions. The provisional estimates will be revised over the next few years.

Understanding Gross Domestic Product (GDP):

Definition: GDP is the total market value of all goods and services produced within India's geographical boundaries in a specified period.
Real vs. Nominal GDP:
- Nominal GDP: value of all the final goods and services at current market prices, without adjusting for inflation.
- Real GDP: adjusts nominal GDP for inflation. It reflects the economy’s true growth by accounting for changes in price levels.

How is GDP Calculated in India?

GDP is calculated by adding up all the money spent in the economy. There are 4 engines of GDP Growth:
- Private Final Consumption Expenditure: Total spending by individuals.
- Government Final Consumption Expenditure: Spending by governments to meet daily expenditures such as salaries, etc.
- Gross Fixed Capital Formation: Spending towards boosting the productive capacity of the economy. Includes investments by the government to build roads, companies building factories or buying office equipment, etc.
- Net Exports: Resultant of Indians spending on imports and foreigners spending on Indian exports.

Key takeaways from the recently released data:

Nominal GDP & its growth: India’s nominal GDP grew to Rs 330.7 trillion (lakh crore) by the end of March 2025. When converted into US dollar terms, the size of India’s economy was $3.87 trillion.
Real GDP & its growth: India’s real GDP grew by 6.5% in FY25 to reach a level of Rs 188 trillion.
GVA & sectoral health of economy: For FY25, the real GVA grew by 6.4%.
- The GVA data best captures the true momentum of the Indian economy as it provides insight into the health of the sectors of the Indian economy. It also excludes the effects of taxes and subsidies, which can distort GDP figures.
- Three main sectors of the Indian economy: (a) Agriculture and allied activities (such as forestry, etc.) (b) Industry (including sub-sectors such as manufacturing, construction) (c) Services (including fields like financial services, trade and hotels)

Despite external challenges (like supply chain disruptions and energy market volatility), the Indian economy remains relatively healthy due to its limited reliance on global goods trade, recent tax cuts, controlled inflation and potentially softer interest rate environment.

India continues to benefit from strong service sector performance, a stable banking system, and improving manufacturing output under schemes like PLI.