ndia has overtaken Japan to become the world’s fourth-largest economy, underlining a landmark moment in its growth story amid what a key report describes as a rare phase of “high growth and low inflation.”
According to the report “2025: A Defining Year for India’s Growth”, the country’s economic momentum has remained strong despite global uncertainties, driven by resilient domestic demand, easing price pressures and improving macroeconomic fundamentals.
The report notes that 2025 marks a “Goldilocks period” for India’s economy, characterised by strong growth without inflationary stress. Official data show real GDP growth accelerated to 8.2% in Q2 of FY 2025–26, a six-quarter high, compared with 7.8% in Q1 and 7.4% in Q4 of FY 2024–25, even as global trade and policy headwinds persist.
As per the International Monetary Fund’s (IMF) World Economic Outlook, April 2025, India’s gross domestic product (GDP) has climbed to USD 4.18 trillion, enabling it to surpass Japan in global rankings. The IMF further projects that India is now poised to overtake Germany within the next 2.5 to 3 years, with GDP expected to expand to USD 7.3 trillion by 2030.
Growth has been “largely driven by robust domestic demand, resilient private consumption and sustained momentum in industrial and services sectors,” the report states. Real gross value added (GVA) expanded by 8.1%, supported by buoyant manufacturing and services activity.
Reflecting the improved outlook, the Reserve Bank of India (RBI) has revised its GDP growth forecast for FY 2025–26 upward to 7.3%, from an earlier estimate of 6.8%. Global agencies including the World Bank, IMF, OECD and Fitch Ratings have also projected India to grow faster than the global average, reaffirming its status as one of the world’s fastest-growing major economies.
On the price front, the report highlights a sharp easing in inflation. CPI inflation declined from 4.26% in January 2025 to historic lows of around 0.25% in October, before edging up to 0.71% in November. For FY 2025–26, the RBI has lowered its CPI inflation projection to 2%, comfortably within its tolerance band. Wholesale inflation mirrored this trend, with WPI inflation slipping to -0.32% in November 2025, signalling easing price pressures across the economy.
Citing the “benign inflation outlook,” the RBI reduced the policy repo rate by 25 basis points to 5.25%, maintaining a neutral stance to support growth while preserving macroeconomic stability.
Employment indicators have also strengthened. Data from the Periodic Labour Force Survey (PLFS) 2025 show unemployment falling to 4.8% in November, the lowest since April, alongside rising labour force participation and worker population ratios. The decline was particularly sharp among women, especially in rural areas, pointing to “broad-based improvements in labour market conditions.”
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2209412®=3&lang=1
India’s external sector remained resilient through 2025. Total exports stood at USD 74.97 billion in January, registering a year-on-year growth of 9.72%, while merchandise exports rose to USD 38.13 billion by November, supported by engineering goods, electronics, pharmaceuticals, gems and jewellery, and petroleum products.
