India will become the world’s fourth largest economy by the end of 2025 (FY 2025-26), according to the International Monetary Fund (IMF’s) World Economic Outlook report for April 2025. The IMF measures the size of an economy in nominal GDP terms.
A few years ago, India overtook the United Kingdom to become the fifth largest, and is now well on its way to rise to the fourth spot in the list of the top 10 largest economies in the world by overtaking Japan.
To become the world’s fourth largest economy is no mean feat - India has gone from being the 10th largest in 2014 to 4th largest in 11 years under the Modi government. Its Gross Domestic Product or GDP has more than doubled in this time frame. How has the Indian economy achieved this remarkable growth? Why does the per capita GDP number present a sombre picture? And what’s the road ahead for India to become a $5 trillion economy, and the world’s third largest?
India's Astounding Growth in Numbers: Top 5 Points
In 2025, India will become the 4th largest economy in the world, in nominal GDP terms, overtaking Japan, and will be behind only the US, China, and Germany.
India’s nominal GDP has more than doubled from 2014 to 2025 (projected). It’s a growth of 105% in just a decade. In 2025, India will also become a $4 trillion economy
India was the 10th largest world economy in 2014 - come 2025 it will be the 4th largest - a six places jump in rankings in just 11 years!
In a world of increasing global economic uncertainties, and amidst geopolitical conflicts and Donald Trump’s tariffs, India will still retain the tag of being the fastest growing major world economy with a GDP growth rate of 6.2% for 2025.
India achieved an average annual growth rate of 6.7% from 1990–2023 & in fact outpaced the US (3.8%), Germany (3.9%), and Japan (2.8%).
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What’s worked for India?
India has been on the reform path in the last few years, with several major initiatives like the Goods and Services Tax, Insolvency and Bankruptcy Code, digitalization, manufacturing sector push paving way for sustained economic growth. Experts also say that prudent fiscal and monetary policies have provided the foundation for a stable GDP growth.
Sachchidanand Shukla - Group Chief Economist, L&T believes that India is one of the top players in the global growth league table today.
“It is a result of structural reforms, policy continuity, and leveraging demographic and digital advantages. Key factors also include reforms such as: Goods and Services Tax, Insolvency and Bankruptcy Code, Production-Linked Incentive and increased spending on infrastructure especially roads, railways, energy & defence,” he tells TOI.
While the Insolvency and Bankruptcy Code has significantly improved the health of the banking sector in India, the Goods and Services Tax is widely seen as the biggest indirect tax reform since independence. India’s GST collections in April hit a record all time high of Rs 2.37 lakh crore!
Radhika Rao, Senior Economist at DBS Bank says that India’s trend growth continues to gain traction, strengthened by catalysts like investments into physical infrastructure, emphasis on improving human capital, streamlining direct subsidy transfers to beneficiaries, productivity gains from digitalisation, widening footprint in high value-added sectors including semiconductors, and expanding presence in global value chains.
“Equity markets have provided corporates with growth capital for investments, besides active participation of banks, private capital, and efforts to deepen the domestic corporate debt market,” she tells TOI.
Ranen Banerjee, Partner, Government Sector Leader at PwC India explains that the positive cycle of a large young population has supported the continued consumption growth feeding into per capita income increase and consequently further boosting consumption. “This has helped and will continue to help in the growth of the Indian economy,” he tells TOI.
The services sector growth leading to large employment in the ITES sector has led to a significant increase in middle income families further aiding growth.
The sobering picture
India may become the world’s 4th largest this year, but with the highest population in the world, its per capita GDP remains abysmally low.
In fact, India doesn’t even rank in top 100 countries when it comes to GDP per capita, not even in the Purchasing Power Parity or PPP rankings.
A large population (1.4 billion) dilutes gains of the GDP doubling. Also, informal employment (~90% of workforce) and low female workforce participation (26% vs. global 47%) limit per capita gains, says Sachchidanand Shukla.
Still, the per capita income has close to doubled over the last 10 years. “That is keeping pace with the overall GDP growth as the population growth is slowing down with fertility rates going close to the replacement rate of 2.2. However, there are regional disparities owing to differential population growth rates as well as pace of economic development,” says Ranen Banerjee.
Road Ahead: More reforms, reforms, reforms
India will realise its dream of becoming a $5 trillion economy in 2027 and the world’s third largest in 2028 by overtaking Germany. But to be on the path of stable and sustained economic growth, experts stress on the need for continuous reforms.
PwC’s Ranen Banerjee advocates for reforms that enable private enterprise to do business without the fear by decriminalising regulatory compliances with application of technology to support in compliances.
“Progressive labour reforms incrementally to allow for greater acceptance of the changes should be the way forward making these changes in special business enclaves. A disproportionate investment in skilling will be key to make the youth employable as it will lay the foundation of social stability and prosperity,” Ramen Banerjee says.
“Enabling exports through common facilities for quality outputs by MSMEs and continued investment in infrastructure to bring down logistics cost and enhance evacuation capabilities will be needed,” he adds.
L&T’s Shukla says, “Going forward India will need to undertake deep agricultural reforms, labour reforms, education & skilling at a scale along with judicial administrative & police reforms,” he says.
Radhika Rao of DBS Bank sees the need to focus on employment generation. “Wheels of the structural engine will require to be oiled by keeping the development and reform agenda on track. Quality of growth is also likely to improve as macro balances remain in check alongside a changing trade composition. Lifting employment generation and by extension boosting incomes will be the vital objective for the administration in the rest of its term,” she says.
There is little doubt that India is amongst the most important markets for all economies globally including the US and China. A stable political scenario at the central government level over the last 11 years along with continued reforms have bolstered global investors’ confidence. But for the fruits of this growth to trickle down to the entire population, it is important to ensure employment for the youth and a strong manufacturing sector base for sustained, stable, and reliable economic growth.
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