India has officially surpassed Japan to become the world's fourth-largest economy, marking a significant milestone in its journey as a global economic power. According to the Indian government's end-of-year economic review released on December 30, 2025, India's GDP has reached $4.18 trillion, exceeding Japan's estimated $4.1 trillion. This achievement places India behind only the United States, China, and Germany in terms of economic size.
The Indian government and economists attribute this shift to sustained high growth propelled by strong domestic demand, expanding manufacturing capabilities, and a resilient service sector. The Reserve Bank of India (RBI) has revised its growth forecast for the 2025-26 fiscal year upwards to 7.3%, signaling confidence in the country's near-term economic prospects.
Looking ahead, projections suggest that India could potentially overtake Germany to become the world's third-largest economy within the next three years. This anticipated rise is expected to be fueled by large-scale infrastructure investments, initiatives in the digital economy, and industrial policies promoted by Prime Minister Narendra Modi's administration. The Indian government anticipates a GDP of $7.3 trillion by 2030.
India's economic expansion has been robust, averaging over 7% annual growth in recent years. This growth has been supported by several factors, including recovery from the COVID-19 pandemic, substantial foreign direct investment inflows exceeding $80 billion annually, and the rapid development of its technology and startup ecosystems. Many economists are calling this period a "Goldilocks" economy, where the country is experiencing strong growth coupled with controlled inflation.
While India's rise in nominal GDP is noteworthy, it is also important to consider the country's large population, which exceeds 1.4 billion, compared to Japan's approximately 125 million. Although India's aggregate output has grown rapidly, its per capita income remains modest. India's per capita GDP is approximately $2,900, significantly lower than Japan's $33,000, highlighting the existing gap in living standards despite the country's economic gains. India's per capita GDP stood at $2,694 in 2024, which is about 12 times lower than Japan's $32,487 and roughly 20 times below Germany's $56,103.
Several international agencies have echoed optimism about India's economic trajectory. The World Bank has projected a 6.5% growth in 2026, while Moody's expects India to remain the fastest-growing G20 economy with a growth of 6.4% in 2026 and 6.5% in 2027. The International Monetary Fund (IMF) has raised its projections to 6.6% for 2025 and 6.2% for 2026, and the Organisation for Economic Cooperation and Development (OECD) forecasts 6.7% growth in 2025 and 6.2% in 2026.
To overtake Germany, India needs to maintain high growth rates, strengthen domestic demand, boost investment in infrastructure and manufacturing, and maintain macroeconomic discipline. The continued strength of domestic demand, driven by rising incomes, expanding urban consumption, and improving rural purchasing power, is crucial. Investment will also play a vital role, requiring the translation of strong credit flows into productive capital formation, especially in infrastructure, manufacturing, and logistics.
