Why is India outpacing China, US, EU and Germany?

Time of India

a day ago

India's economic growth will moderate a bit in FY26 but will remain steady even though the rest of the world is faltering, as per the
World Bank
's latest estimates. It has brought down India's growth forecast for FY26 to 6.3% from 6.7% estimated in January. However, as per various estimates,
India
will still remain the fastest-growing major economy.
Also Read:
World Bank predicts India dhoom amid global gloom
India first emerged as the world's fastest-growing major economy in 2015, surpassing
China
in terms of GDP growth rate. The convergence of a favorable external environment (low oil prices, for instance), domestic macroeconomic stabilization and a bold reform agenda laid the foundation for India's economic acceleration. From 2015–2018, India's GDP growth hovered between 7.5% and 8%, outpacing China, whose growth had slowed to around 6.5–6.7% due to a structural transition from investment-led to consumption-driven growth. Key reforms during this period included the Make in India initiative, liberalisation of FDI norms and steps toward fiscal consolidation. The Goods and Services Tax (GST) was passed in 2017, a landmark move toward a unified national market.
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From 2019 to 2020 was a period of headwinds. By late 2018 and 2019, growth began to moderate due to banking sector stress (notably in NBFCs), weakening private consumption, and sluggish private investment. In FY2019–20, GDP growth eased to 5%, compared with the 6.1% growth in the previous fiscal year, 2018-19, due to global economic conditions as well as a slowdown in the manufacturing and construction sectors, weak consumption growth and challenges in the financial sector.
The COVID-19 pandemic in 2020 dealt a major blow to the economy, causing GDP to contract by 7.3% in FY21, its worst performance since independence. India rebounded strongly in FY22 with 8.7% growth, supported by a surge in domestic demand, public capex and recovery in services and exports. Since 2022, India has consistently maintained a growth rate of 6–7%, while most advanced economies and even China have decelerated significantly. The World Bank, IMF, and the UN have repeatedly reaffirmed India as the fastest-growing major economy from 2021 onward, a status it is expected to retain at least through FY26.
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According to projections from the United Nations' World Economic Situation and Prospects 2025, the IMF, and the World Bank, India is poised to remain the fastest-growing major economy, outpacing China, the US, the European Union, Germany and other developed economies. This growth differential is not merely a statistic but a reflection of shifting structural dynamics, macroeconomic fundamentals and policy contrasts among global players.
India is steady as the world falters
The global economy is expected to expand by just 2.3% in 2025, a deceleration from previous expectations. This subdued pace underscores the persistence of several cross-cutting headwinds: Rising protectionism, especially through tariff escalation and strategic decoupling (notably between the U.S. and China), is limiting trade volume growth. The World Bank warns that global trade expansion in 2025 will likely be under 2%, significantly below the historical average of 4–5%.
Central banks in developed economies, particularly the ECB and the Federal Reserve, are maintaining cautious monetary stances amid persistent core inflation, resulting in elevated real interest rates that inhibit both consumer spending and capital investment. The war in Ukraine, US-China tensions, and energy supply disruptions continue to undermine investor confidence and disrupt global supply chains. Demographic aging, productivity stagnation and tepid innovation diffusion are combining to suppress growth in key economies like Germany and Japan.
The US will see projected growth of around 1.4% in 2025 as per the World Bank, down from 2.3% projected in January, marking a slowdown, primarily due to the delayed effects of monetary tightening., weakening consumer sentiment due to inflation fatigue, and political uncertainty in an election year, which could delay public investment decisions.
China's growth projection remains unchanged at 4.5% in 2025, modest by its historical standards. Although policy tools remain available, Beijing faces structural issues in its real estate sector, declining labor force participation, and rising geopolitical isolation and capital outflows.
The euro area is expected to grow by just 1%, while Germany remains one of the weakest performers among OECD members. Energy insecurity and high input costs post-Russia sanctions continue to weigh on industrial production. Structural reliance on exports, especially to a slowing China, is increasingly a liability. A lag in green transition investments reduces medium-term competitiveness.
Why India remains an outlier
India is projected to grow at 6.3% in FY26, maintaining its status as the world's fastest-growing major economy. The reasons for this outperformance are both cyclical and structural. Unlike export-reliant economies, India benefits from a consumption-heavy GDP structure. A growing middle class, rising urbanization and increasing per capita income create a resilient consumer base that cushions the economy from global shocks.
India remains in its demographic sweet spot. With a median age of 29, the labour force continues to expand, driving both demand and productivity gains. In contrast, aging populations in Europe, China, and Japan act as long-term drags on growth.
Government-led capital expenditure, especially in infrastructure (roads, railways, energy, and digital infrastructure), has a strong multiplier effect. This investment boom has also crowded in private sector investment, particularly in manufacturing and logistics. Reforms such as the GST, Insolvency and Bankruptcy Code, and digital public infrastructure (UPI, Aadhaar stack) have enhanced formalization, compliance, and productivity in the economy.
India's IT and digital services exports continue to surge, and the country is increasingly positioning itself as a global back office for advanced services including fintech, edtech, and healthtech, coming a long way to Global Capability Centres from call centres of early 2000s. This high-margin sector provides a valuable cushion to current account pressures. Amid US-China decoupling and China+1 strategies, India is attracting foreign direct investment into electronics, pharmaceuticals, semiconductors and renewable energy manufacturing.
However, despite optimism, India is not immune to global turbulence. Key risks include dependence on oil imports, which exposes it to energy price shocks. A relatively weak export sector may limit benefits from global recovery phases. Fiscal pressures can grow if subsidies rise due to electoral considerations.
The global economy is navigating a low-growth equilibrium, marked by fragmented trade, demographic drag and inflation inertia. India's growth, by contrast, is being propelled by favorable demographics, domestic demand and policy momentum. What distinguishes India is not just its headline growth rate but the underlying composition of the economy. Whether this momentum translates into sustained long-term convergence with advanced economies will depend on India's ability to broaden the benefits of growth, invest in human capital, and build resilience against future global shocks.