India Overtakes Japan to Become World’s 4th-Largest Economy at $4.18 Trillion, Low Inflation Fuels Growth Momentum

India Overtakes Japan to Become World’s 4th-Largest Economy, Signals New Global Economic Power Shift.

As 2025 draws to a close, India has marked a defining moment in its economic journey by officially surpassing Japan to become the world’s fourth-largest economy by nominal GDP, with the economy valued at $4.18 trillion, a milestone that reflects both scale and sustained momentum.

According to the government’s end-of-year statement released on December 30, 2025, this rise has been powered by a rare convergence of strong growth, low inflation, falling unemployment, and expanding global engagement. India recorded a six-quarter high GDP growth of 8.2% in the second quarter of FY 2025–26, driven by resilient domestic demand and robust private consumption, reinforcing its position as the fastest-growing major economy in the world.

At the same time, inflation eased sharply, with Consumer Price Index (CPI) inflation dropping to a multi-year low of 0.71% in November 2025, well below the Reserve Bank of India’s comfort band, creating a “Goldilocks” phase of high growth with price stability and prompting the RBI to cut the repo rate to 5.25% to further stimulate economic activity.

The labour market also showed clear signs of strength, as unemployment fell to 4.7% nationally, with rural unemployment declining to 3.9% and female labour force participation improving, particularly in rural India, indicating broader and more inclusive growth.

On the global front, India’s external sector expanded significantly, with exports projected to hit record highs led by engineering goods, electronics, and pharmaceuticals, while cumulative foreign direct investment inflows crossed the landmark $1 trillion mark, underscoring strong global investor confidence in India’s structural reforms and long-term potential.

Looking ahead, the government projects that India is on track to overtake Germany to become the world’s third-largest economy by 2027–28, with GDP expected to reach $7.3 trillion by 2030, though policymakers acknowledge that rising total GDP must be matched with improvements in per capita income to ensure equitable wealth distribution across the country’s 1.4 billion population.