India to overtake Japan as fourth largest economy in 2025

New Delhi: India is likely to gallop past Japan to become the world's fourth-largest economy in 2025, the International Monetary Fund’s (IMF) April 2025 World Economic Outlook (WEO) has projected, with Germany next in its sights for the third position.

The IMF projects India’s nominal gross domestic product (GDP) to rise to $4.187 trillion in 2025, pulling ahead of Japan’s estimated $4.186 trillion by a whisker.

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This shift would mark a significant milestone in India’s economic ascent, underscoring its resilience and sustained growth momentum amid global uncertainties.

Despite the rise, India will continue to trail behind the US and China, the world’s two largest economies, that are expected to report GDPs of $30.51 trillion and $19.23 trillion, respectively, in 2025.

Germany is forecast to maintain a lead over India with a nominal GDP of $4.74 trillion this year.

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In 2024, India ranked fifth globally with a GDP of $3.9 trillion, compared to Japan’s $4.1 trillion.

The projected shift in 2025 reflects India’s rapid economic expansion and the relative stagnation of Japan’s economy, which has faced demographic and structural challenges in recent years.

India’s rise in the global economic rankings reflects its long-term growth potential, underpinned by robust domestic demand, a favourable demographic profile, and structural reforms aimed at boosting productivity and enhancing the investment climate, the IMF said.

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However, recent data suggests a moderation in momentum. After clocking an impressive 8.2% GDP growth in FY24—up from 7% in FY23—economic expansion has slowed in recent quarters.

In the third quarter of FY25, India’s GDP grew by 6.2%, an improvement from 5.6% in the previous quarter.

Still, the pace leaves a challenging path to meet the National Statistical Office’s revised full-year growth target of 6.5%.

Interestingly, the IMF's latest World Economic Outlook has lowered India’s growth forecast for 2025-26 to 6.2%, down from its earlier projection of 6.5%.

The downgrade comes amid a broader cut in global trade forecasts, driven by mounting concerns over the ongoing US tariff war.

Similar downward revisions have recently been issued by the Asian Development Bank, Moody’s Analytics and S&P Global.

In April, the US imposed a 27% reciprocal tariff on Indian goods, citing India’s average 52% duty on US imports, as part of efforts to address trade imbalances and protect domestic industries.

Though the tariff was reduced to 10% on 9 April, offering temporary relief for three months to India and other partners, it continues to strain trade dynamics and disrupt currency stability and capital flows.

Trade policy uncertainty is a significant factor dampening the global economic outlook, with increased unpredictability surrounding market access, leading many firms to pause investment and reduce purchases, IMF's economic counsellor Pierre-Olivier Gourinchas said addressing the media last month.

"Likewise, financial institutions will re-evaluate their credit supply to businesses, until they can assess the latter’s exposure to the new environment," he added.