India’s economy is Aided by Domestic Consumer Purchasing, Steady Investment Activity, and Improved Management of Monetary and Fiscal Policies

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India is set to close 2025 on a high note. The Indian government's end-of-year economic review shows India surpassing Japan in global GDP rankings.

India Fourth Largest Economy

The review said India's gross domestic product has reached about $4.18 trillion. It is projected to reach $7.3 trillion by 2030. India is expected to overtake Germany to become the world's third-largest economy within the next three years.

India's GDP grew 8.2% in the second quarter of the 2025-26 financial year. It has increased from 7.8%, marking a six-quarter high.

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The government described the current phase as a rare "Goldilocks" period of high growth, saying “strong corporate balance sheets, steady credit flows, and ongoing reforms have positioned India for sustained expansion.”

Reasons behind the Growing Indian Economy

Growth was said to have been driven primarily by domestic demand, with particularly strong private consumption, despite continued global trade and policy uncertainty.

“Export performance has also strengthened,” the review noted. Merchandise exports rose to $38.13 billion in November. It has increased from $36.43 billion in January, driven by engineering goods, electronics, and pharmaceuticals, the report revealed.

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"India is among the world's fastest-growing major economies and is well-positioned to sustain this momentum."

"With the ambition of attaining high middle-income status by 2047, the centenary year of its independence, the country is building on strong foundations of economic growth, structural reforms, and social progress," the report added.

Challenges for the Indian Economy

The income gap is a major concern for the Indian economy. India's GDP per capita stood at $2,694 in 2024, according to the latest World Bank data. It is about 12 times lower than Japan's GDP per capita ($32,487). India’s GDP per capita is 20 times below Germany's $56,103.

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India overtook China in 2023 to become the world's most populous country. Government figures show that more than a quarter of India's 1.4 billion people are aged between 10 and 26. The biggest challenge for the government is creating jobs for millions of young graduates.

Final Thoughts

Official confirmation of India surpassing is still waiting. It depends on the International Monetary Fund’s data when the final annual GDP figures are released. Analysts believe that India will surpass Japan next year.

The Reserve Bank of India has revised its growth forecast for the 2025-26 financial year upward to 7.3%.

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