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India’s Economic Rise to Fourth-Largest Economy
India has become the 4th largest economy, ahead of Japan: NITI Aayog CEO
Context: According to NITI Aayog CEO B.V.R. Subrahmanyam, India has become the fourth-largest economy in the world, overtaking Japan with a nominal GDP of $4.187 trillion, compared to Japan’s estimated $4.186 trillion.
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- The CEO of NITI Aayog announced this milestone, highlighting India’s rapid growth from the 10th-largest economy in 2014 to the fourth in just over a decade.
- This achievement reflects India’s economic resilience, driven by structural reforms, domestic consumption, and expanding global trade.
India’s Economic Rise: Key Highlights
- Fourth Largest Economy by 2025: According to the IMF’s April 2025 World Economic Outlook, India will surpass Japan to become the fourth largest economy globally in nominal GDP terms, trailing only the US, China, and Germany.
- Rapid Growth Trajectory: India’s nominal GDP has more than doubled since 2014, marking a 105% increase in just over a decade.
- The country was the 10th largest economy in 2014 and is projected to be fourth by 2025, a remarkable six-place jump in 11 years.
- Fastest-Growing Major Economy: Despite global uncertainties and geopolitical tensions, India is expected to maintain strong economic momentum.
- The IMF’s World Economic Outlook projects India’s real GDP growth at 6.2% for 2025, outpacing global peers such as China (4.6%), the US (1.6%), and Japan (0.7%).
Drivers of India’s Economic Growth
- Structural Reforms: Key reforms such as the Goods and Services Tax (GST), Insolvency and Bankruptcy Code, and Production-Linked Incentive schemes have streamlined business processes and improved economic efficiency.
- Digitalisation and Infrastructure: Investments in digital infrastructure, roads, railways, energy, and defence have bolstered the manufacturing sector and overall productivity.
- Demographic Dividend: A large young population has fueled consumption growth and increased the middle-income segment, especially through the expanding IT and IT-enabled services sectors.
- Stable Fiscal and Monetary Policies: Prudent economic management has provided a stable foundation for sustained growth, attracting global investors and boosting corporate investment.
Challenges:
- Low Per Capita GDP: Despite the large GDP, India’s per capita income remains low due to its massive population of 1.4 billion, ranking outside the top 100 globally in per capita GDP and PPP terms.
- Informal Workforce and Female Participation: Approximately 90% of the workforce is in informal employment, and female labour participation is only 26%, well below the global average of 47%, limiting income gains per capita.
- Regional Disparities: Economic development and population growth rates vary across regions, leading to uneven income distribution.
The Road Ahead
- $5 Trillion Economy by 2027: India aims to reach a $5 trillion economy in the next two years, a critical milestone toward becoming the third-largest economy by 2028, overtaking Germany.
- Need for Continued Reforms: Experts emphasise ongoing reforms in labour laws, agriculture, education, skilling, judicial, and administrative systems to sustain growth and improve employment.
- Focus on Employment and Manufacturing: Generating jobs and strengthening the manufacturing sector are vital for inclusive growth and to ensure benefits reach the wider population.
- Leveraging Technology and Private Enterprise: Decriminalising regulatory compliances, adopting technology for ease of doing business, and investing in MSMEs and infrastructure will be key enablers.
