India's GDP overtakes Japan; on track to emerge as third largest global economy
India's economic ascent continues to captivate global attention as it surpasses the $4 trillion GDP milestone, securing its position as the world's fourth-largest economy, ahead of Japan.
NITI Aayog CEO B.V.R. Subrahmanyam announced this achievement following the 10th Governing Council meeting of NITI Aayog, emphasising that India is on a clear trajectory to become the third-largest economy within the next two to three years, trailing only the US, China, and Germany.
This remarkable growth, driven by robust private consumption, strategic policy reforms, and a favourable geopolitical environment, underscores India's emergence as a global economic powerhouse.
The International Monetary Fund (IMF) projects India's GDP growth at 6.2 per cent for FY25 and 6.3 per cent for FY26, outpacing global growth estimates of 2.8 per cent and 3.0 per cent for the same periods. These figures position India as the fastest-growing major economy, a status it is expected to maintain over the next two years.
The IMF's April 2025 World Economic Outlook report forecasts India's nominal GDP reaching $4.187 trillion by FY26, slightly edging out Japan's projected $4.186 trillion. This milestone follows India's rise from the fifth-largest economy in 2024, reflecting its sustained economic momentum.
India's growth is underpinned by a dynamic private sector and resilient domestic consumption. The Union Bank of India (UBI) projects a 7.0 per cent GDP growth rate for Q4 FY25, an improvement from 6.2 per cent in Q3, with Gross Value Added (GVA) expected to rise to 6.7 per cent from 6.2 per cent. The UBI report highlights a mixed but cautiously optimistic trend in high-frequency indicators, with an economic activity index signaling a mild upward bias.
Private sector activity, excluding agriculture and government contributions, is expected to accelerate to 6.8 per cent in Q4 from 5.9 per cent in Q3, according to the report. The Reserve Bank of India (RBI) Bulletin further supports this outlook, noting sequential improvements in economic momentum during the second half of FY25, a trend anticipated to persist.
Krishnamurthy V. Subramanian, IMF executive director, has set an ambitious long-term vision, suggesting that India could grow into a $55 trillion economy by 2047 if it sustains an 8.0 per cent annual growth rate in rupee terms. This target, while bold, is deemed achievable through coordinated policy efforts between state and central governments to elevate growth beyond the historical 7.0 per cent average. Compounding at this rate could transform India's economic landscape, positioning it as a global leader over the next two decades.
India's manufacturing sector also stands to benefit from its cost-competitive environment. Responding to concerns about U. President Donald Trump's push for domestic iPhone production, Subrahmanyam noted that India remains an attractive manufacturing hub due to its cost advantages, even amidst potential tariff uncertainties. This resilience is bolstered by India's strategic asset monetization initiatives, with a second round of monetization plans set to be unveiled in August 2025, further strengthening economic infrastructure.
High-frequency indicators present a nuanced picture, with the UBI report revising its full-year FY25 growth estimate to 6.3 per cent from 6.5 per cent, reflecting cautious optimism. Key sectors such as manufacturing, services, and exports continue to drive growth, supported by government reforms and infrastructure investments. India's favourable demographic dividend, with a young and skilled workforce, and its expanding digital economy further enhance its growth potential. For instance, India's digital payments ecosystem, led by the Unified Payments Interface (UPI), processed over 131 billion transactions in FY24, reinforcing its role as a global leader in fintech innovation.
Globally, India's rise is reshaping economic narratives. As advanced economies grapple with slower growth, India's vibrant economy, strategic reforms, and competitive manufacturing base position it as a beacon of opportunity. With a clear path to becoming the third-largest economy by 2028 and aspirations of reaching $55 trillion by 2047, India is not just keeping pace but setting the pace for global economic progress.
As Subrahmanyam stated, 'The geopolitical and economic environment is favourable to India,' signaling a future where the nation's economic influence will only grow stronger.
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