Despite a "precarious moment" for the global economy, India remains the fastest-growing large economy, according to the United Nations. The UN's mid-year update of the World Economic Situation and Prospects (WESP) report projects India to grow by 6.3% this fiscal year. This growth is driven by strong private consumption and public investment. While this is a downward revision from the 6.6% projection made in January, it still positions India ahead of other major economies. The UN forecasts India's economy to grow slightly faster at 6.4% next year.
Global Economic Context
The global economic outlook is facing significant headwinds. "Heightened trade tensions, along with policy uncertainty, have significantly weakened the global economic outlook for 2025," the WESP report warns. Global GDP growth is forecast at just 2.4% in 2025, a decrease from 2.9% in 2024. Several major developing economies, including Brazil, Mexico, and South Africa, are also experiencing growth downgrades due to weakening trade, slowing investment, and falling commodity prices. China's growth is expected to slow to 4.6% due to subdued consumer sentiment, disruptions in export-oriented manufacturing, and ongoing property sector challenges.
India's Strengths and Challenges
Resilient private consumption, strong public investment, and robust services exports are supporting India's economic growth. Inflation is projected to slow from 4.9% in 2024 to 4.3% in 2025, remaining within the central bank's target range. The government's tax exemptions are expected to increase consumer spending and potentially boost GDP.
However, challenges remain. The WESP report highlights risks to India's export sector from potential US tariff threats. Other factors, such as election-led policy caution, irregular rainfall, and global trade uncertainties, have muted momentum in the first three quarters of fiscal year 2024-25. Sluggish consumer demand and declining real wages for many Indian workers also pose concerns. To achieve its ambition of becoming a developed nation by 2047, India needs to achieve an annual growth rate of 8 percent or more, requiring comprehensive economic reforms.
India's Position in the Global Economy
The International Monetary Fund (IMF) projects India to become the fourth-largest economy in the world in 2025, surpassing Japan. India's nominal GDP for 2025 is expected to be $4,187.017 billion, slightly more than Japan's estimated $4,186.431 billion. By 2028, India's GDP is projected to overtake Germany, becoming the third-largest economy globally.
Other Perspectives
Deloitte forecasts India's GDP to grow between 6.3% and 6.5% in fiscal year 2024-25 and between 6.5% and 6.7% in the current fiscal year. UNCTAD estimates India will grow by 6.5% in 2025, driven by robust public spending and ongoing monetary easing. The IMF, in its April 2025 World Economic Outlook, projects India's economy to grow by 6.2% in 2025 and 6.3% in 2026.
Conclusion
Despite global economic headwinds, India is expected to maintain its position as the fastest-growing large economy. Strong domestic demand, fiscal support, and stable inflation are expected to power India's growth. However, India faces challenges such as trade tensions, sluggish consumer demand, and the need for further economic reforms. Overcoming these challenges will be crucial for India to achieve its long-term economic ambitions.
