India Moves Into Fourth Place Globally, Setting Its Sights on Germany

India has become the world’s fourth-largest economy with a nominal GDP of about $4.18 trillion, overtaking Japan after surpassing the UK in 2022. Driven by strong domestic demand, favourable demographics, low inflation and robust growth, India is now targeting Germany. Sustained reforms, investment and macroeconomic stability could lift it to third place within a few years.

India’s rise to become the world’s fourth-largest economy marks a significant realignment in the global economic order. As outlined in the Press Information Bureau’s publication “2025: A Defining Year for India’s Growth,” India’s nominal gross domestic product has climbed to about $4.18 trillion, pushing it ahead of Japan and placing it behind only the United States, China, and Germany.

This achievement follows a clear upward trajectory rather than a sudden breakthrough. In 2022, India overtook the United Kingdom to claim the fifth position globally, and the latest shift reinforces the country’s steady advance among the world’s largest economies. Together, these milestones underscore a sustained transformation driven by domestic strength and long-term momentum.

The reshuffling of global rankings also reflects broader structural changes. Several advanced economies are grappling with slower growth and demographic pressures, while large emerging markets such as India are expanding more rapidly, reshaping the balance of economic power.

The path past Japan

India’s move ahead of Japan is best explained by the contrasting conditions in the two economies. Japan has struggled for years with subdued growth, weighed down by an ageing population, weak consumer demand, and persistent deflationary tendencies. India, in contrast, has benefited from favourable demographics, a growing working-age population, and a steadily expanding internal market.

Recent economic performance highlights this divergence. India’s real GDP growth accelerated to 8.2 percent in the July–September quarter of FY 2025–26, the strongest pace in six quarters, following growth of 7.8 percent in the previous period. This pickup came despite ongoing uncertainties in global trade, pointing to the resilience of India’s domestic demand. Strong private consumption, supported by higher employment and contained inflation, combined with supportive financial conditions that kept credit flowing to businesses, enabled India to grow far faster than Japan in nominal terms.

A notable aspect of India’s expansion has been the coexistence of rapid growth and subdued inflation. Price pressures have remained below the lower end of the tolerance band, giving policymakers room to maintain accommodative conditions and boosting household purchasing power. Reflecting this environment, the Reserve Bank of India raised its growth projection for FY 2025–26 to 7.3 percent.

Labour market indicators have improved alongside output. The unemployment rate for those aged 15 and above declined to 4.8 percent in November 2025, the lowest since April, with particularly sharp improvements among women in both rural and urban areas. Higher labour force participation and better worker-to-population ratios suggest a reinforcing cycle in which growth generates jobs, rising incomes, and stronger consumption.

Germany emerges as the next benchmark

With Japan now behind it, India’s attention has turned to Germany, currently ranked third globally. Germany’s economy is expected to total roughly $5.01 trillion in 2025 and about $5.33 trillion in 2026. India, meanwhile, is projected to reach around $7.3 trillion by 2030, implying that it could surpass Germany within the next two-and-a-half to three years if current trends persist.

Germany remains a wealthy and technologically advanced economy with a strong export-oriented manufacturing base. However, it faces headwinds from softer global trade, the costs of transitioning to cleaner energy, and an ageing population. These factors have constrained its growth outlook, opening space for a faster-growing economy like India to narrow the gap.

What India must sustain to move into third place

Passing Germany will depend on India’s ability to maintain elevated growth over several years, rather than relying on short-term cyclical boosts. At the core of this effort is the continued expansion of domestic demand. Rising household incomes, stronger urban spending, and improving rural purchasing power—supported by stable inflation and favourable agricultural conditions—will need to remain central drivers.

Investment will be equally critical. Strong credit availability must translate into productive investment, particularly in infrastructure, manufacturing, and logistics. Expanding the manufacturing base in an increasingly competitive global environment will help balance India’s services-led growth, generate large-scale employment, and lift productivity.

Structural reforms will play a decisive role in sustaining momentum. Further streamlining of the Goods and Services Tax, greater regulatory clarity, and deeper financial-sector reforms can lower costs and attract long-term capital. While corporate and bank balance sheets are currently in good shape, preserving financial stability as credit expands will be essential.

External factors can provide additional support. Services exports are expected to stay strong, and successful trade and investment agreements could deepen India’s integration into global value chains. Broadening export destinations and moving up the value ladder in both goods and services would reduce exposure to global shocks. Above all, disciplined macroeconomic management—keeping inflation low, managing fiscal pressures, and ensuring policy stability—will be crucial. Maintaining this balanced, “just right” mix of growth and stability would not only put India on track to surpass Germany but also strengthen its claim among the world’s top three economies.

India’s ascent to fourth place globally reflects years of consistent expansion, robust domestic fundamentals, and improved macroeconomic stewardship. Moving ahead of Japan represents both a symbolic and substantive shift in the global economic landscape. The next test—overtaking Germany—will hinge on India’s capacity to sustain growth while deepening reforms and preserving stability. If the current momentum endures and the base of growth continues to widen, India’s rise to the third-largest economy may arrive sooner than many expect.