December 31, 2025 | 07:49 am
TEMPO.CO, Jakarta - India has surpassed Japan to become the world's fourth-largest economy, according to calculations in the Indian government's end-of-year economic review.
On current trends, India is expected to overtake Germany to become the world's third-largest economy within the next three years, the review said.
How big is India's economy?
The review said India's gross domestic product has already reached about $4.18 trillion (€3.55 trillion), and is projected to reach $7.3 trillion by 2030.
On current trends, it said, India would trail only the United States and China in economic heft.
India's real GDP grew 8.2% in the second quarter of the 2025–26 financial year, up from 7.8% in the previous quarter and marking a six-quarter high.
Export performance has also strengthened, the review noted. Merchandise exports rose to $38.13 billion in November, up from $36.43 billion in January, supported by engineering goods, electronics, pharmaceuticals, and petroleum products.
Official confirmation however depends on data due in 2026 when final annual GDP figures are released. The International Monetary Fund suggests India will surpass Japan next year.
The Reserve Bank of India has revised its growth forecast for the 2025–26 financial year upward to 7.3%.
Why might India's economy be booming?
Growth was said to have been driven primarily by domestic demand, with particularly strong private consumption, despite continued global trade and policy uncertainty.
The government described the current phase as a rare "Goldilocks" period of high growth and low inflation, saying strong corporate balance sheets, steady credit flows, and ongoing reforms have positioned India for sustained expansion.
"India is among the world's fastest-growing major economies and is well-positioned to sustain this momentum."
"With the ambition of attaining high middle-income status by 2047 — the centenary year of its independence — the country is building on strong foundations of economic growth, structural reforms, and social progress."
What economic challenges does India face?
In income terms, the gap with advanced economies remains wide. India's GDP per capita stood at $2,694 in 2024, according to the latest World Bank data—about 12 times lower than Japan's $32,487 and roughly 20 times below Germany's $56,103.
By population, India overtook neighboring China in 2023 to become the world's most populous country.
Government figures show that more than a quarter of India's 1.4 billion people are aged between 10 and 26. Creating enough well-paid jobs for millions of young graduates is an upcoming hurdle, but the report offered a rosy outlook.
"As one of the world's youngest nations, India's growth story is being shaped by its ability to generate quality employment that productively absorbs its expanding workforce and delivers inclusive, sustainable growth," a note in the review said.
Prime Minister Narendra Modi this year unveiled sweeping consumption tax cuts and pushed through labor law reforms after growth slowed to a four-year low in the 12 months ending March 31.
Currency pressures have also mounted. The rupee hit a record low against the dollar in early December, after falling about 5% in 2025. That came amid concerns over the lack of a trade deal with Washington and the impact of higher levies on Indian goods.
India became the world's fifth-largest economy in 2022, when its GDP overtook that of former colonial ruler Britain, according to IMF figures.
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