India’sVs Japan’sEconomy: A critical analysis

P.P. SEN Managing Director Citizens’ Urban Cooperative Bank, Gangtok

Five largest Economy of the world: The global economy is estimated at approximately 115 trillion US dollar (one trillion is equal to one lakh crore) in 2025, with the United States holding the largest individual economy of $30.3 trillion. This estimate is based on nominal GDP figures, meaning the total value of goods & services produced within a year is measured in current US dollars. The world’s second largest economy China is having nominal GDP of 19.23 trillion US dollars. Then the third largest is the Germany having nominal GDP of 4.744 trillion US dollar. Recently, it is reported that India has become the fourth largest economy of the world by going ahead of Japan with very nominal amount, both countries having nominal GDP of around 4.19 trillion US dollar. We all know that a country is not categorised as ‘developed country’ on the basis of the size of the nominal GDP alone. There are other criteria or parameters for a country to be categorised as a developed economy such as high GDP per capita, strong economic growth in the past, equitable income distribution, low unemployment rate, high living standards, high literacy rates, strong social safety nets, political stability, advanced technological infrastructure, strong legal and regulatory framework etc

Why Japan is so developed a country:Japan’s rapid and fast development started after the world war II, often called the ‘economic miracle’ was the result of combination of  factors like government-industry cooperation, focus on higher and technical education, a strong work ethic with less corruption and focus on export oriented manufacturing etc. The Japanese government actively supported and collaborated with industries fostering innovation and growth. A culture of dedication and hard work ensured their economic progress. Japan embraced technological innovation and became leader in various industries. High levels of support for research and development enabled technological advancements in various fields of Japan. A practice of long-term planning played a major role in the functioning of the Japanese economy. Japan developed highly efficient production systems such as the use of specialized factories for producing specific parts. Focusing on exporting manufactured goods generated significant economic revenue. Japan invested heavily in infrastructure including transportation which facilitated economic growth. Japan is renowned for its incredibly punctual public transportation, especially its bullet trains, with an average delay of just 18 seconds. Japan has a highly efficient and strong social security system which has contributed to the economic stability. Besides, a highly skilled workforce, strong public system, robust Research & Development (R & D) spending, efficient urban planning and focus on innovation catapulted Japan in the higher trajectory of economic and overall development.

The flip side is that Japan is experiencing a significant decline in its population driven by low birth rate and a high death rate leading to a shrinking workforce which could ultimately cause economic slowdown.  This is why Japan is considering attracting foreign workers to help address labour shortages and support the economy.

The estimated population of Japan as of a recent date is 12.31Crore. The average per capita income in Japan, based on GDP per capita is around 33,955.70 US dollar (Rs29, 02,873.00). The literacy rate in Japan in 2025 is projected to be 99%. At present, Japan’s unemployment rate is about 2.5%. Japan’s Human Development Index (HDI) is 0.925 and ranks 5^th in Asia and 24^th globally. As of 2024, Japan ranks 11^th in the world for quality of life, 3^rd in the world for quality of health care and 6^th for safety. Japan ranked 20^th out of 180 countries in Corruption Perceptions Index (CPI) with a score of 71 on a scale of 0 to 100 with 0 representing highest and 100 representing lowest corruption. Japan’s Global Hunger Index (GHI) score is typically below 5, placing it in the ‘low’ hunger category. Japan maintains one of the highest food security rates globally with only 3.4% of its population experiencing food insecurity. Japan has one of the most comprehensive health care systems in the world with national health insurance covering all citizens.

Japan has a parliamentary democratic constitutional monarchy. The emperor is the head of the State, primarily performing ceremonial duties while Prime Minister is the head of the government. There are two houses in the parliament (Diet): House of Representatives (lower house) and the House of Councillors (upper house). Though the multi-political party system exists in Japan, the Liberal Democratic Party (LDP) has historically dominated Japanese politics remaining maximum number of terms and years in power. Japan consistently demonstrates high political stability and ranks 4^th overall in the Lowy Institute’s Asia Power Index. Japan has been recognised as a leader in political stability and government effectiveness within the G20 countries. This stable political environment fosters a positive investment climate and encourages internal and external business houses to operate smoothly and with confidence in Japan.

Japanese religious beliefs are a blend of indigenous Shinto traditions (48.6%) and imported Buddhism (46.4%), often practiced together. This unique religious landscape also includes Confucianism, Christianity and various other religions derived from Shinto and Buddhism. The constitution of Japan provides for freedom of religion and prohibits religious organisations from exercising any political authority and receiving privileges from the state. The Japanese Constitution, explicitly prohibits the government from establishing a state religion or discriminating against any religious group. This constitutional framework ensures a separation of religion and state. While many Japanese people participate in religious rituals like Shinto and Buddhist practices during weddings, funerals or festivals, they are often said to do so out of cultural tradition rather than out of religious devotion.

When India can catch up with Japan:After defeat and surrender in Second World War, Japan became free from USA’s occupation on April 28, 1952. After that they started building their economy. Japan’s population was 8.50 crore during 1952 and during last 73 years, population increased by 3.81crore only to 12.31crore and GDP increased to 4.19 trillion US dollar at present. During the period 1952-73, Japan produced economic miracle and during that period Japan’s economy expanded at the unprecedented rate with an average annual growth rate of around 10% in Gross National Product (GNP).  In contrast, when India got independence from 200 years of  British colonial rules in 1947, its population was 34crore and its population increased by more than 100crores in last 78 years and it is about 140crores as of now. In India, development was not commensurate with increase in population and income distribution was skewed, more income going in favour of few, keeping the vast majority of people having very low income and poverty-stricken.

At present India’s per capita income is around 3,000 US dollar. Japan’s per capita income is 11 times more than that of India. Literacy rate in India is 77.70% compared to 99% of Japan.  The overall unemployment rate in India is 5.1% compared to 2.5% in Japan. India’s Human Development Index rank is 130 out of 193 countries compared to Japan’s 24^th rank globally. India ranked 96^th out of 180 countries in Corruption Perceptions Index (CPI) with a score of 38 on a scale of 0 to 100 with 0 representing highest and 100 representing lowest corruption. Japan being ranked 20^th, is much less corrupt country than India. Corruption is a very dreaded disease in India which is eating into the vitals of India’s economy and is responsible for extreme poverty at one end and huge richness at another end. In the 2024 Global Hunger Index (GHI), India ranks 105^th out of 127 countries with a score of 27.3 indicating a very high level of hunger while Bangladesh ( 84^th), Nepal (68^th) and Sri Lanka (56^th) have better scores and considered moderate and much better than India in respect of GHI. In many other parameters and indexes, Japan is much ahead of India. This is the stark reality which cannot be lost sight ofand still we will have to walk many miles before we reach the stature of Japan’s economy. 

 If India’s per capita GDP is to be equivalent to Japan’s per capita GDP at present (about 34,000 US dollar), then India’s GDP should be 47.65 trillion US dollar.  The highest GDP holder globally is USA now who has GDP of about 30.3 trillion US dollar and India’s present GDP is only 4.19 trillion US dollar. So, it is very difficult to calculate by how many years, India’s economy would be able to reach the stature of Japan’s economy in terms of Per Capita GDP and other developmental parameters as highlighted above which the Japan’s economy is now having.

Nonetheless, the Indian Government’s vision is to achieve developed country status by 2047, coinciding with the 100^th anniversary of India’s independence. To be a developed country twenty years down the line, India needs huge investment in all sectors of economy such as in  Agriculture, Manufacturing and Services including in education, health care, roads, railways, transportation, aviation, Information and communication technology etc. Capital and financial investment are to be generated from private and public sectors from within the country and at the same time huge foreign investment is to be brought in to almost all the sectors of India’s economy for which investor friendly business climate is to be created.

India needs to develop a robust banking system to give support to the development of the economy and may be some more big banks are to be created like State Bank of India in the country. Huge skilled technical manpower is to be developed through world class technical institutions. The challenge of reducing corruption from all levels is to be fought with utmost sincerely with no compromise and distribution of income is to be ensured at all levels, more to the middle level, low level of income groups and to the people living at the bottom of income level pyramid when the economy will get a jerk to grow exponentially. The political, administrative, judicial machineries must be unbiasedly pro-active and corruption free and people friendly in thought and actions. The respect for all castes, creeds, religions must be maintained at any cost to maintain peace and harmony throughout the country which is the essential pre-condition for the development of the economy. Let India shines with its entire people shining and contributing to the development of the economy enhancing the living standard of all people and ensuring an inclusive growth devoid of any kind of conflicts, rancor, discord etc. and every Indian is allowed to follow their own faith and belief system.