India on Track to Become 3rd Largest Economy as Pakistan Faces Economic Collapse
- India is set to become the world’s third-largest economy by 2025 with a GDP of $4.187 trillion.
- Pakistan faces economic collapse with a GDP of $0.37 trillion and heavy reliance on IMF loans.
- Moody’s reports India’s economy remains stable despite tensions, while Pakistan’s may worsen.
India is set to become the third-largest economy in the world, fueled by strong growth, booming public investment, and buoyant domestic consumption. India's nominal GDP will increase to $4.187 trillion in 2025, surpassing Japan, as per the International Monetary Fund's (IMF) World Economic Outlook. Pakistan, on the other hand, continues to spiral downward into economic ruin, depending heavily on foreign assistance and IMF loans to remain afloat.
The extreme difference between the two South Asian neighbors highlights the different directions they have pursued ever since they became independent of the British in 1947. India, the world's fastest-growing large economy, now has a GDP of about $3.88 trillion over ten times bigger than Pakistan's, which is a tiny $0.37 trillion. India's foreign exchange reserves have grown to $688 billion, while those of Pakistan have fallen to just over $15 billion, hardly sufficient to finance a few months of imports.
Pakistan's economy has been severely impacted by long-standing political instability, military intervention, and its sustained policy of aiding terrorism. The decades of army takeovers and authoritarian regimes have stunted the economic growth of Pakistan. India, on the other hand, has concentrated on developing infrastructure, reducing poverty, and encouraging innovation, which has greatly improved its economic position at the global level.
Ironically, over the decades since independence, both countries developed at a similar rate. Pakistan initially enjoyed huge US assistance and grants from rich Islamic nations. Nevertheless, the ongoing emphasis on military goals over economic reform has put the country in a state of fiscal chaos. The cost of sheltering terror has also rebounded with Pakistan currently witnessing widespread civil strife, especially in Balochistan and the North West Frontier Province.
In 2023, Pakistan avoided a sovereign default by the skin of its teeth thanks to an IMF bailout of $3 billion. It is in talks with another climate resilience loan of $1.3 billion. Still, international agencies are cautious about the country's capacity to service its debt. Moody's, in a recent analysis, cautioned that Pakistan's access to international funding continues to be weak and can be further undermined by geopolitical tensions, particularly with India.
The danger of war between the two countries re-emerged after a terror attack in Pahalgam, where 26 Indian tourists were killed. Pakistan's leadership threatened a robust response to India's targeted operations against terrorist infrastructure. However, Moody's pointed out that even if tensions rise, India's macroeconomic stability is likely to be preserved because of its negligible economic dependence on Pakistan — less than 0.5% of its total exports in 2024.
Though India might experience higher defence expenditure in the face of heightened security risks, Moody's is of the view that this will not seriously derail its fiscal consolidation efforts. The agency observed that India's economic fundamentals are robust, with continued public investment and robust consumer demand serving as stabilising factors.
As the world economic order is reconfigured, India seems firmly set to become one of the world's top three economies. Pakistan, on the other hand, needs to urgently tackle its internal political crisis, fiscal mismanagement, and isolation at the international level to avoid further economic decline.
