India and Japan occupied the global news headlines of late when India achieved the monumental feat of surpassing Japan to claim the title of the world’s fourth-largest economy with a nominal GDP of $4.187 trillion, narrowly ahead of Japan’s $4.186 trillion.
India and Japan represent two fascinating, yet contrasting, economic stories on the global landscape.
One is a rapidly growing, populous emerging market with a youthful demographic, while the other is a mature, technologically advanced economy grappling with demographic challenges. This tale of two economies highlights their unique strengths, challenges, and forward paths.
Often hailed as the ‘world’s fastest-growing major economy’, India has been on a remarkable trajectory. The milestone of surpassing Japan marks its ascent as a global economic powerhouse, driven by a youthful population, booming tech and manufacturing sectors, and bold infrastructure initiatives.
Yet, for millions of Indians—from tech workers in Bengaluru to farmers in Bihar—this headline masks a deeper question: how does this growth translate into everyday life? And how does it compare to Japan, a nation celebrated for its high living standards, equitable wealth distribution, and efficient society?
India’s economic ascent to the world’s fourth-largest economy is a point of national pride. Yet, beneath this headline lies a troubling reality: One per cent of Indians control nearly 40 per cent of the nation’s wealth, according to recent reports. This extreme concentration of wealth underscores an alarming widening of the gap between the haves and have-nots, threatening social cohesion and sustainable growth.
An economy’s size is measured by its Gross Domestic Product (GDP), the total value of goods and services produced annually. India’s $4.187 trillion GDP in 2025 places it behind only the United States of America, China, and Germany, fuelled by a population of 1.45 billion.
However, GDP per capita reveals a stark divide. India’s per capita income is roughly $2,900, while Japan’s is $39,000, over 13 times higher. With Japan’s population at 125 million, its wealth is more evenly distributed, ensuring better living standards. For the average Indian, this means national prosperity doesn’t yet translate into personal wealth. Japan’s edge lies in higher living standards, better infrastructure, and equitable wealth distribution, despite a smaller economy.
Japan’s Gini coefficient (a measure of inequality) is among the lowest globally, while India’s is high, reflecting greater disparity. Its model shows that equitable growth can enhance stability, a model that India can look to emulate.
India’s economic surge is reshaping lives, but the benefits are uneven, and challenges persist. Its economic growth brings opportunities but doesn’t automatically translate into immediate improvements for everyone. In total economic size, India has overtaken Japan, but in daily life metrics, Japan remains far ahead due to various factors pointed above.
India’s unemployment rate in April 2025 was 5.1 per cent, higher than Japan’s impressive 2.5 per cent. Urban youth face a steep 17.2 per cent unemployment rate. A skills mismatch—65.7 per cent of India’s unemployed are educated but lack training for high-tech roles—remains a hurdle. Income inequality and regional disparities persist, with rural areas lagging in infrastructure and access to services. The informal sector, which employs a large portion of the workforce, lacks social security and stability. India’s 250-million-strong middle class is fuelling a consumer boom, from smartphones to 5G streaming. Digital payments, like UPI at village shops, are transforming even rural areas. In contrast, Japan’s $39,000 per capita income ensures most citizens enjoy modern homes, reliable public transport, and leisure like dining out or bullet train travel. While India’s middle class will expand, its 140th global rank in per capita income underscores that the poorest won’t see quick gains.
India’s Universal Health Coverage Index has improved, with schemes like Ayushman Bharat providing free care to millions. Yet, 35.5 per cent of under-5 children face malnutrition, and rural healthcare is inconsistent. Economic growth is expanding hospitals, but high out-of-pocket costs burden families.
Japan’s universal healthcare ensures near-total coverage with advanced facilities. India’s low per capita income limits such access.
The concentration of around 40 per cent of India’s wealth in the hands of one per cent of its population has far-reaching consequences such as economic instability, social tensions, political influences and youth frustration, among others.
Extreme inequality can stifle growth. The poorest 43 per cent, who struggled for food in 2022, have limited purchasing power, slowing consumer-driven economic expansion. India’s 140th global rank in per capita income ($2,900) reflects this skewed distribution.
Rising inequality fuels resentment, as seen in urban-rural divides and protests over job scarcity. The urban middle class enjoys smartphones and 5G, while rural families face malnutrition (35.5 per cent of under-five children) and inadequate healthcare.
The wealthy one per cent wields disproportionate influence, potentially shaping policies that perpetuate their advantage. These risk undermining democratic fairness and public trust.
With urban youth unemployment at 17.2 per cent, educated young Indians feel excluded from the wealth boom, leading to disillusionment and potential unrest.
To address its wealth gap, India requires bold and inclusive policies like progressive taxation, skilling and education, rural investment, and social safety nets, among others.
Strengthening wealth and inheritance taxes could redistribute resources. Closing loopholes and improving tax compliance would ensure that the rich contribute fairly. Expanding access to quality education and vocational training, especially in rural areas, can bridge the skills mismatch. Boosting agriculture, rural infrastructure, and healthcare (such as expanding Ayushman Bharat) would lift the poorest, reducing the urban-rural divide. Strengthening welfare programs, like food subsidies and unemployment benefits, can support the have-nots, thereby reducing poverty’s grip.
India’s economic milestone is a moment of pride, but true success lies in improving daily life. The challenge is to ensure that its economic boom lifts all boats, not just the yachts of the elite. Emulating Japan’s focus on equitable systems while leveraging India’s youthful demographic advantage could transform this tale of inequality into one of shared prosperity. To rival Japan’s quality of life, India must prioritise equitable growth, skilling, and infrastructure.
The economic race should be on—not just to grow bigger, but to grow better.
(The author is former Senior Editor, The Economic Times, and currently practicing as an Advocate in Telangana High Court)CR SUKUMAR
