In late April 2024, the International Monetary Fund (IMF) estimates revealed that India’s Gross Domestic Product (GDP) in Nominal terms will reach $4.34 trillion in 2025 while Japan’s GDP will be at $4.31 trillion. With this, India will overtake Japan to become the World’s 4th largest economy by next year. Incidentally, New Delhi’s jump to fourth place comes a year earlier than predicted by the IMF in its last estimate, partly because of a fall in the Japanese currency, Yen.
As per reports, the announcement of India surpassing Japan by next year has shocked Tokyo. It has initiated a churn among the economists and strategists in the country that used to be the undisputed 2nd-largest economy in the world till 2010 but will soon slip to fifth place behind the US, China, Germany, and India.
The chief policy economist for Fujitsu’s Global Market Intelligence Unit, Martin Schulz said, “For Japan, this is a very big concern — but few people are talking about it openly because it is embarrassing and very difficult to solve.”
According to Schulz, when Shinzo Abe became the Prime Minister in 2012, he correctly recognised the problems Japan was facing at that time and announced sweeping plans to lift Japanese growth. These plans were dubbed as “Abenomics”. Two of his “three arrows” of the policy — monetary easing by the Bank of Japan and fiscal stimulus through government spending – achieved success. However, the third arrow, of structural reforms, fell short.
Schulz added, “The whole idea of Abenomics was to drive growth at businesses, but structural reforms were also needed to push productivity, but that is very hard to do in a country that is aging and where there is resistance to change, to digitalisation and people who have been in positions for a long time simply prefer the old ways.”
As per Japanese strategists, the COVID-19 pandemic and Russia’s war in Ukraine have had a similar impact on Japan’s economy that is still being felt as it is felt elsewhere. Other indicators point out a more acute problem for the Japanese economy.
Recently, the Organization for Economic Cooperation and Development (OECD) released its latest report on 2nd May on the outlook for global economic growth. As per the estimates, the world would grow at 3.1%, up from 2.9% in its February report. However, it has cut Japan’s growth estimates from the 1% it had projected three months earlier to just 0.5%. In May, the OECD predicted India to grow at 6.6%.
Global strategist and managing director of Nikko Asset Management in Tokyo, Naomi Fink stressed that some of Japan’s economic malaise can be linked to the three “lost decades” of stagnant economic growth.
Speaking with DW, Fink argued that developed economies tend to grow slower than emerging economies like India. She said, “It’s altogether normal for developed countries to grow more slowly than emerging markets — they have less growing to do before they hit a growth equilibrium, and they typically have aging populations, even with a degree of inward migration.”
Fink added that Japan could not match India’s investment in infrastructure and a rapidly growing middle class. She pointed out that Germany had surpassed Japan primarily because of the fall in the Japanese currency yen against the euro over the last 12 years. Yen saw a decline of 40% which put the real exchange rate effectively at a 50-year low.
Schulz pointed out that the feeble yen is arguably the Japanese government’s greatest challenge at the moment. “The yen is becoming a major problem and while in the past if governments did nothing it would bounce back, that is not happening this time,” he said.
He noted that market intervention has been “futile” and will remain that way for as long as interest rates remain static.
While the Japanese strategists express concern over slipping in the leaders tally, Former NITI Aayog CEO lists out how major structural reforms by the Modi government drove India’s surge
Amitabh Kant was India’s Sherpa during the country’s G20 Presidency and served as the Former CEO of NITI Aayog, the apex public policy think tank of the Government of India.
India is all set to overtake Japan as 4th largest economy in the world by 2025. Some highlights of India’s journey to the Top 5 Economies of the world in 2024 from Fragile 5 in 2013:
— Amitabh Kant (@amitabhk87) May 12, 2024
– Record GST revenue of ₹ 2.1 lakh crore
– 8 % growth in last three quarters
– Trading in…
While lauding PM Modi’s leadership for bringing structural reforms, he listed major achievements of the Modi government that catapulted India from Fragile 5 in 2013 to the Top 5 Economies of the world in 2024.
– Record GST revenue of ₹ 2.1 lakh crore
– 8 % growth in last three quarters
– Trading in Indian currency rupee with 27 countries
– Double-digit growth in the steel, cement, and automobile manufacturing sectors
– Global leader in digital public infrastructure, with e-transactions surging to 134 billion, accounting for 46% of all global digital payments
– Accounts opened under Jan Dhan, Aadhaar, and Mobile Trinity have over Rs 2.32 lakh crore as the current balance
– Average annual inflation between FY14 and FY23 declined to 5% from 8.2% between FY04 and FY14
