Recently, the International Monetary Fund has projected that the Indian economy will grow by more than seven percent per year. Even if India manages to sustain the GDP growth rate of six percent, India will become a $5trn economy by 2030.
With the current government, it is believed that this goal should be easily achieved. India’s gross domestic product (GDP) has crossed the $4trn mark in nominal terms, making it the fourth largest globally, several media reports said on Nov 19, citing a purported screenshot of the live GDP tracker of all economies based on International Monetary Fund (IMF) data.
With this development, India’s economy has made significant progress toward its ambitious goal of becoming a $5trn economy by 2025. India’s sustained efforts in several sectors, coupled with good governance and strategic policies, have also fueled this historic leap, highlighting India’s position as one of the fastest growing major economies in the world. India, having achieved the $4trn GDP milestone, stands tall as a beacon of economic prowess and global influence. It took the Indian economy nearly 60 years since independence (1990s) to reach the $1trn mark and added another trillion in just seven years. In 2014, India’s GDP crossed the $2trn mark. Now, India is working toward achieving a $5trn economy by 2025 and has prepared a roadmap for it.
Nepal’s GDP in dollar terms is estimated to be around $43.42bn in 2024 and $46.08bn in 2025. In terms of purchasing power parity (PPP), World Economics has estimated Nepal’s GDP in 2024 at $243bn and projected $255bn for 2025, while another estimate by World Economics has projected a real GDP of $35bn in 2024 and $36.5bn in 2025. In a nutshell, one of the major reasons why Indian GDP grew so rapidly in the early 2000s was foreign investment and investment in India.
The milestone of shared prosperity of the private sector of Nepal and India should be able to benefit from India’s economic growth. In this regard, regular dialogue, trade facilitation and policy coordination have been promoted by establishing a collective platform in the private sector in the past and even now, but it has not been seen in action and result. It is also necessary and imperative to implement the work of simplifying the trade process and utilizing the existing infrastructure to benefit from the easy opportunities for cooperation between the two countries. Although Nepal has developed a special economic zone in the border area, it has not been successful.
In addition, there should be no delay in ensuring collaboration, knowledge exchange and access to new markets between entrepreneurs and technology innovators of both countries by building startups and innovation bridges. The private sector must do this work. How will a $5trn economy affect the lives of Indians in this way? If India reaches a $5trn economy, the per capita income, which is $2,160, will double. The purchasing power of the people will double from what it is now. Thus, the people will live a better life.
The government will have more funds to invest in infrastructure development, create more jobs through industrialization, invest in higher education and research, etc. Instead of welfare measures, the government will empower the poor and lift them above the poverty line.
The government will invest heavily in providing drinking water to all. The government can also think of providing underground sewage systems in all villages.
Technology will be given importance. Investment will be in high technology like bullet trains, metros, smart cities, space and satellites, etc.
The government will invest in industries that provide large amounts of employment. A growing Indian economy presents both opportunities and challenges for Nepal. Increased trade, investment and infrastructure development are major potential benefits, while Nepal needs to strategically align its growth to capitalize on these opportunities and mitigate potential negative impacts like increased competition and dependence.
Increased trade and investment: A stronger Indian economy could increase demand for Nepali goods and services, boost Nepal’s exports and attract Indian investment, especially in border areas. India’s focus on infrastructure projects could create opportunities for Nepal to improve its own connectivity and food production, potentially reducing trade barriers and transportation costs. A stronger Indian economy could boost economic activities in Nepal, fostering shared prosperity through greater trade, investment, and cooperation.
As proposed by some, a start-up and innovation bridge could facilitate collaboration and knowledge exchange between entrepreneurs and technological innovators in both countries. Closer economic ties with neighboring India could strengthen Nepal’s position in regional and global value chains.
A stronger Indian economy could intensify competition for Nepali businesses, especially in sectors such as agriculture, manufacturing, and services. Nepal’s dependence on remittances from Nepali workers in India can be affected by economic slowdowns or policy changes in India. Disparities in infrastructure development, especially in rural areas, can hinder Nepal’s ability to fully benefit from increased trade and investment.
Nepal’s trade deficit with India, characterized by high imports and low exports, could widen further without strategic intervention. Effective policy coordination between the two governments is crucial to maximize opportunities and address challenges. Under the recommendations for Nepal, under strategic alignment, Nepal needs to align its development strategy with the economic trajectory of neighboring India, focusing on areas where it can leverage India’s growth for its own benefit. In infrastructure development, infrastructure development, especially in border areas, appears to be a priority to improve connectivity, reduce trade barriers, and facilitate the movement of goods and people across borders.
Under investment in special economic zones, there should be cooperation and emphasis on establishing special economic zones in border areas to attract foreign investment and promote export-oriented industries. Under border infrastructure, investment in border infrastructure can be expected to reduce logistical barriers and improve trade efficiency. Promoting private sector involvement is not only necessary but also imperative.
Private sector-to-private sector involvement can be expected to be encouraged, especially in areas such as energy and trade, to promote shared growth.
Policy coordination between the two governments should be strengthened to facilitate trade, investment and other forms of economic cooperation. By proactively addressing these challenges and capitalizing on the opportunities presented by the economic growth of neighboring India, Nepal can and should position itself for sustainable and inclusive development, otherwise Nepal will fall far behind.
A trillion-dollar question
There is a need to fight corruption, create political stability. All children should receive at least seven years of schooling. Women should be given the opportunity to access free birth control to decide whether family, education or work is best for them. Already developed sectors such as tourism and agriculture should be boosted by implementing new developed concepts for sectors with less technological maturity. New sectors and concepts should be created to drive future innovative areas of research and technology. The tax system should be refined to make it more efficient and fair. Taxes should be paid and support payments should be made when necessary. It would also be worthwhile to create rules that benefit entrepreneurs or students who are working in the country after completing their studies and taking risks by starting companies and providing jobs to people.
Nepal’s economic prospects may also depend on its relations with neighboring countries such as India and China, particularly in terms of trade and investment. Addressing challenges such as climate change, natural disasters and environmental sustainability will be essential for long-term economic health. While challenging to predict with certainty, creating a $1trn economy by 2050 will require extraordinary growth and development efforts. Current trends suggest that while ambitious, it is a feasible goal if Nepal can effectively utilize its resources and improve its economic situation.
