India overtakes Japan as world’s fourth largest economy in 2025

India has surpassed Japan to become the world’s fourth-largest economy in 2025, with a nominal GDP of $4.187 trillion compared to Japan’s $4.186 trillion, according to the International Monetary Fund’s April 2025 World Economic Outlook. The milestone, driven by robust growth in manufacturing and services, marks a significant step in India’s ascent as a global economic powerhouse, with projections suggesting it will overtake Germany to claim the third spot by 2028.

Taj Mahal, India. Illustrative photo

The IMF forecasts India’s economy to grow at 6.2% in 2025, the fastest among major economies, despite a slight downgrade from 6.7%. This growth is fueled by government stimulus, digital infrastructure investments, and a burgeoning middle class. The recent UK-India Free Trade Agreement, announced on May 6, is expected to further boost exports, particularly in whisky, cars, and cosmetics, adding billions to the economy. However, tensions in Kashmir following last month’s attack on tourists have raised concerns about regional stability, potentially impacting investor confidence.

Globally, India’s rise comes amid economic turbulence. US tariffs under President Donald Trump, including a 10% baseline and higher sector-specific levies, have disrupted trade flows, contributing to a record US trade deficit in March and a decline in global M&A activity to its lowest since 2005. China, facing deflationary risks, saw services activity expand at its slowest pace in seven months, despite an 8% rise in May Day holiday spending. The Bank of England’s anticipated rate cut to 4.25% reflects fears of a “growth shock” from these tariffs, with the UK’s 2025 growth forecast slashed to 1.1%.

India’s economic momentum is not without challenges. The Reserve Bank of India projects 6.5% growth for FY26, but rising energy costs and global trade uncertainties could weigh on inflation. The IMF warns that the global economic system is undergoing a “reset,” with trade conflicts threatening financial stability. Still, India’s trajectory remains strong, with its GDP expected to hit $5 trillion by 2027, cementing its role as a key driver of global growth.