It is official, India is not the fourth-largest economy in 2025

Mangalore Today News Network/ Deccan Herald

By Subhash Chandra Garg

New Delhi, Nov 18, 2025: “We are the fourth largest economy as I speak. We are a $4 trillion economy, and this is not my data — it’s IMF data. India today is larger than Japan,” said B V R Subrahmanyam, CEO of NITI Aayog, after the 10th NITI Aayog Governing Council meeting on May 25, claiming India to have ‘officially’ become the fourth-largest economy.

Subrahmanyam confused IMF GDP projections for 2025 (2025-2026 for India) with the actual size of India’s and Japan’s economies. The IMF, in its economic outlook released in April, projected a higher by a whisker GDP for India at $4.197 billion against Japan’s $4.196 billion.

The IMF has updated its projections for 2025 in its October outlook. India is now projected to have a lower GDP than Japan in 2025. India is not, as per the IMF, a la Subrahmanyam, ‘officially’ the fourth-largest economy in 2025.

Why have GDP projections for 2025 gone awry for India? When is India likely to overtake Japan? As guaranteed, will India be the third-largest economy before Prime Minister Narendra Modi completes his third term in 2029?

Japan remains comfortably ahead

In 2024 (2024-2025 in India’s case), India’s GDP was $3.91 trillion in the IMF’s April 2025 Outlook; Japan’s was $4.02 trillion. There has been an optimistic bias in the IMF’s GDP projections for India for some years; in Japan’s case, it is opposite. The IMF’s GDP growth projections are a combined interplay of two basic variables — nominal GDP growth and local currency’s depreciation/appreciation vis-a-vis the US dollar.

Projecting India’s growth at 7.34% and Japan’s at 4.3%, the IMF had earlier projected India’s GDP at $4.197 trillion and Japan’s GDP at $4.196 trillion for 2025. The experience in 2025, however, has not been in line with what the IMF assumed.

India’s April-June nominal GDP growth was only 8.8% and the rupee depreciated by about 4% by October. Taking actual performance into consideration, the IMF has now projected India’s 2025-2026 GDP at $4.125 trillion.

Japan recorded better-than-usual annualised GDP growth of about 2% in the first half of 2025. Its currency yen appreciated by more than 5% against the US dollar in the first nine months of 2025. Accordingly, the IMF has revised Japan’s GDP for 2025 to $4.280 trillion.

The October 2025 IMF projections are unlikely to reverse much in the remaining few months of 2025 (2025-2026 in the case of India). Japan, therefore, will remain the fourth-largest economy in 2025 and India the fifth-largest.

When will India overtake Japan?

The IMF projects India’s GDP in 2026 (2026-2027 in India’s case) at $4.506 trillion, implying a growth of 9.22%. For Japan, it has projected $4.464 trillion, assuming a growth of 4.29%.

If you take the IMF’s latest projections on face value, India will overtake Japan in 2026 with a lead of $42 billion.

Are these projections reasonable?

Most institutions, including the RBI, project India’s real GDP growth in 2026-2027 at about 6.5%. Factoring in inflation of 2-3.5%, India’s nominal GDP will most likely see growth between 8.5% and 10%. Rupee, considering dynamics currently at play (poor capital flows, tariff tensions, etc.), will most likely witness 2-4% depreciation. In such a case, in 2026-2027, India’s GDP, in current USD, may be between 5.5% and 6.5%; certainly not at 9.22% as the IMF projects.

Japan’s policymakers are not comfortable with the yen’s appreciation against the USD. Their interventions may limit their appreciation in 2026. With a small positive nominal GDP growth, Japan’s GDP may record growth at about 5%.

In this scenario, India may not cross Japan’s GDP in 2026-2027 as well, and would need to wait for 2027-2028 to overtake Japan’s GDP.

Redemption of Modi’s guarantee

Modi has on many occasions held out his guarantee that India would become the third-largest economy before the end of his third term.

The IMF’s current estimate for India’s GDP in 2028-2029, the last year of Modi 3.0, is $5.462 trillion. It projects Japan’s GDP at $4.821 trillion, and Germany’s at $5.674 trillion for 2028. The IMF, therefore, does not project India to be the third-largest economy in 2028-2029. At its current projections, Modi’s guarantee is likely to fail.

Will it be the fourth largest? Is there some risk? For the remaining three years (to 2028-2029), the IMF has projected India’s dollar GDP growth at 8.72% per annum.

The Modi government’s growth track record is not that inspiring: 5.5% growth in 2025-2026, 6.96% during the 11 years under Prime Minister Narendra Modi (2013-2024), and 6.12% during Modi 2.0.

India’s projected 2025-2026 GDP of $4.125 trillion will grow to $4.96 trillion at a 6.12% annual compounded growth rate. At 5.5%, it increases to only 4.84 trillion. With Japan’s 2028 GDP projected at $4.821 trillion, such a case will make India’s GDP too close to comfort to overtake Japan in 2028-2029.

It will truly be a tragedy if India does not become even the fourth-largest economy by 2028-2029. Not only will Modi’s guarantee fail, but the Indian economy will also become stuck in lower middle-income trap.

Courtesy: Deccan Herald

Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, ‘Commentary on Budget 2025-2026’, and ‘We Also Make Policy’.