Defining moment: India overtakes Japan to become world’s fourth largest economy; enjoys ‘Goldilocks’ phase with high growth, low inflation
India Becomes Fourth Largest Economy
India has been the world’s fastest growing major economy for several years now.
The size of its economy has doubled in the last ten years, and it is now eyeing the position of being the third largest in the world.A government economic note issued late Monday highlighted that India remains one of the fastest-expanding major economies globally and is well placed to maintain its growth pace. IMF forecasts for 2026 value India’s economy at $4.51 trillion, slightly above Japan’s projected $4.46 trillion.
The government’s optimistic outlook comes even as the economy faces headwinds following the imposition of steep US tariffs in August linked to India’s buys of Russian oil.
Recent high-frequency data signals that economic momentum is holding firm.
Inflation has stayed below the lower bound of the tolerance band, joblessness is easing, and exports are showing steady improvement, the government review noted.Financial conditions also remain supportive, marked by healthy credit expansion to businesses, while demand continues to be resilient, aided by a further pickup in urban consumption.India’s real GDP expanded by 8.2% in the second quarter of FY 2025-26, accelerating from 7.8% in the preceding quarter and 7.4% in the final quarter of FY 2024-25.
This growth was driven by strong domestic demand, even as global trade and policy uncertainties persisted.
Real gross value added rose 8.1%, underpinned by solid performance in the industrial and services sectors.The Reserve Bank of India raised its growth projection for FY 2025-26 to 7.3%, up from 6.8% earlier.
The upward revision factors in sustained domestic demand, rationalisation of income tax and GST, softer crude prices, an early push in government capital spending, and accommodative monetary and financial conditions, all supported by contained inflation.“Ongoing reforms are likely to further enable growth prospects.
Present macro-economic situation presents a rare “goldilocks period” of high growth and low inflation,” the review said.
