India becomes the world’s 4th largest economy in 2025, surpassing Japan. Low inflation, strong growth, employment gains, and export growth define a Goldilocks era, with further expansion expected by 2030.
New Delhi: India has achieved a major economic milestone in 2025 by overtaking Japan to become the world’s fourth-largest economy in terms of nominal GDP. According to the Indian government’s year-end economic review, India’s GDP has reached $4.18 trillion, placing it behind only the United States, China, and Germany. This marks a significant step in India’s growing global economic influence.
Strong Economic Growth Drives the Rise
India’s rise has been powered by strong economic growth. In the second quarter of the 2025–26 financial year (July to September), the country’s real GDP grew by 8.2%, up from 7.8% in the previous quarter and 7.4% in the last quarter of 2024–25. This was the highest growth rate seen in six quarters.
The growth came mainly from strong domestic demand, along with steady performance despite global trade challenges. At the same time, Gross Value Added (GVA)—which measures actual production within the country—grew by 8.1%, supported by good results in the industrial and services sectors.
RBI and Global Agencies Remain Optimistic
The Reserve Bank of India (RBI) has raised its growth forecast for 2025–26 to 7.3%, from an earlier estimate of 6.8%. The RBI cited several reasons for this confidence, including tax reforms, lower crude oil prices, higher government spending on infrastructure, and supportive interest rate policies.
Global institutions such as the IMF, World Bank, OECD, Moody’s, S&P, Fitch, and ADB have also maintained a positive outlook on India, continuing to rank it as the fastest-growing major economy in the world.
Low Inflation and High Growth: A ‘Goldilocks’ Phase
A key feature of 2025 has been India entering a “Goldilocks” phase, meaning the economy is growing fast while inflation remains low.
Consumer inflation (CPI) fell sharply from 4.26% in January to just 0.71% in November. In October, inflation even dropped to a historic low of 0.25%, mainly due to falling food prices. Wholesale inflation also eased, reaching -0.32% in November.
In response, the RBI cut the repo rate by 25 basis points to 5.25% and reduced its inflation forecast for 2025–26 to 2.0%.
Employment Situation Improves
Employment indicators also showed improvement in 2025. The unemployment rate for people aged 15 and above fell to 4.8% in November, the lowest since April. Rural unemployment declined to 3.9%, while urban unemployment dropped to 6.5%.
Women’s participation in the workforce improved as well, with unemployment among urban women falling to 9.3% and rural women to 3.4%. The labour force participation rate rose to 55.8%, and the worker population ratio increased to 53.2%, showing better job availability, especially in rural areas.
Exports Continue to Support Growth
Exports remained strong throughout the year. Merchandise exports increased from $36.43 billion in January to $38.13 billion in November, led by engineering goods, electronics, pharmaceuticals, gems and jewellery, and petroleum products.
Services exports also performed well, growing 8.65% between April and November to reach $270.06 billion, mainly due to computer and business services. Overall exports remained stable, helping balance global uncertainties.
What Lies Ahead?
The IMF estimates that India’s GDP will rise to $4.51 trillion in 2026, slightly ahead of Japan. The Indian government expects to overtake Germany within the next 2.5 to 3 years. By 2030, India’s economy is projected to reach $7.3 trillion, making it the third-largest economy in the world.
This confidence is based on strong corporate finances, steady credit growth, ongoing reforms, good agricultural output, and progress in trade talks.
Challenges Still Remain
Despite strong overall growth, challenges persist. India’s per capita income remains low at $2,694, far behind Japan and Germany. Creating enough high-quality jobs, especially for young people—who make up a large share of the population—continues to be a key concern.
The Indian rupee also weakened by about 5% in 2025, hitting record lows against the US dollar, due to trade concerns and higher global tariffs.
A Defining Year for India’s Economy
The government sees 2025 as a turning point for India’s economic strength, with growth expected to continue into 2026–27. With a long-term goal of becoming a high middle-income country by 2047, India is building on strong growth, reforms, and social progress, steadily moving toward becoming a major global economic power.
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