India’s Economy: Surpasses Japan – Growth & Low Inflation

India Surpasses Japan to Become World’s Fourth-Largest Economy, Eyes Germany’s Spot

India has officially overtaken Japan to become the world’s fourth-largest economy in nominal GDP terms, a critically important milestone reflecting its sustained economic growth. with a GDP valued at $4.18 trillion, the nation is poised to challenge Germany for the third-largest position in the coming years, fueled by robust domestic demand and strategic economic reforms.

A Decade of Doubling and a Vision for Third Place

India’s economic trajectory has been remarkable, with the size of its economy doubling over the past decade. The government’s year-end economic review highlights India’s position as one of the fastest-expanding major economies globally, well-positioned to maintain its current growth pace. projections estimate India’s GDP coudl reach $7.3 trillion by 2030.

IMF Confirmation and Future Projections

Final confirmation of India’s position will depend on data released by the International Monetary Fund (IMF) in the first half of 2026, encompassing the final figures for 2025. However, current forecasts are optimistic. The IMF anticipates India’s economy will be valued at $4.51 trillion in 2026, exceeding japan’s projected $4.46 trillion.

Navigating Headwinds and Maintaining Momentum

Despite a generally positive outlook, the Indian economy faces some challenges, including the impact of US tariffs imposed in August related to India’s purchases of Russian oil. nevertheless, recent economic data signals continued momentum. A senior official stated that economic indicators remain firm, with inflation staying within acceptable bounds, unemployment easing, and exports showing consistent betterment.

Strong Domestic Demand Drives Growth

India’s real GDP expanded by 8.2% in the second quarter of fiscal year 2025-26, accelerating from 7.8% in the preceding quarter and 7.4% in the final quarter of fiscal year 2024-25. This growth is largely attributed to strong domestic demand,even amidst global trade and policy uncertainties. Real gross value added also rose by 8.1%, driven by robust performance in both the industrial and services sectors.

Reserve Bank of India Optimism and Policy Adjustments

The reserve Bank of India (RBI) has raised its growth projection for fiscal year 2025-26 to 7.3%, up from an earlier estimate of 6.8%. This upward revision reflects sustained domestic demand, income tax and GST rationalization, softer crude oil prices, increased government capital spending, and accommodative monetary policies, all supported by contained inflation. The RBI has cumulatively cut the repo rate by 1.25% this year, bringing it down from 6.5% to 5.25%, balancing growth support with inflation management.

A “Goldilocks Period” for the Indian Economy

The government review describes the current macroeconomic situation as a rare “goldilocks period” – characterized by high growth and low inflation. CPI inflation stood at 4.26% in January and has steadily declined, reaching historic lows of around 0.25% in October, primarily due to a correction in food prices.

External Strength and Remittance Inflows

India’s external position remains strong, bolstered by healthy growth in services exports and a significant increase in overseas remittances. The current account deficit (CAD) narrowed to 1.3% of GDP in the second quarter of fiscal year 2025-26,down from 2.2% in the same period of the previous fiscal year. Remittance inflows rose by 10.7% year-on-year during the quarter, further reinforcing external stability.

Upgraded Assessments and a Buoyant Outlook

Global and domestic institutions are upgrading their assessments of India’s economic fundamentals, reflecting broad-based momentum across key sectors. The RBI’s revised GDP growth projection for fiscal year 2025-26, increasing from 6.8% to 7.3%, underscores this positive outlook. India’s growth story continues to unfold, positioning it as a key player in the global economy.