With nominal GDP estimated at about $4.18 trillion, India has overtaken Japan to become the world’s fourth-largest economy. Projections from multilateral institutions suggest that, if current momentum is sustained, India is on track to surpass Germany and claim the third spot globally by 2027.
Official data show that India’s real GDP growth accelerated through the year, reaching 8.2 per cent in the second quarter of FY 2025–26, up from 7.8 per cent in the first quarter and 7.4 per cent in the final quarter of FY 2024–25. This marked a six-quarter high and underscored the resilience of domestic demand even as global trade and geopolitical uncertainties persisted. Real gross value added expanded by 8.1 per cent, driven by robust activity in industry and services, while private consumption remained the main pillar of growth.
India’s macroeconomic position has strengthened alongside this expansion. The International Monetary Fund expects India to remain the fastest-growing major economy, projecting growth of 6.6 per cent in 2025 and 6.2 per cent in 2026, while the Reserve Bank of India has upgraded its FY 2025–26 growth forecast to 7.3 per cent from an earlier 6.8 per cent.
A defining feature of 2025 has been India’s “Goldilocks” macroeconomic environment, where growth has remained strong even as inflation has fallen sharply. Consumer price index inflation softened steadily from 4.26 per cent in January 2025 to multi-year lows by October, before edging up slightly to 0.71 per cent in November. The disinflation was driven largely by a correction in food prices and stable core inflation, keeping headline inflation well within the RBI’s tolerance band of 2 to 6 per cent. Reflecting this benign outlook, the central bank lowered its CPI inflation forecast for FY 2025–26 to 2.0 per cent and reduced the policy repo rate by 25 basis points to 5.25 per cent, adopting a neutral stance that balances growth support with price stability.
Wholesale prices mirrored this trend. Wholesale price index inflation slipped into mild deflation by November 2025, highlighting a broad-based easing of price pressures across the economy. Together, retail and wholesale inflation trends reaffirmed the credibility of India’s inflation-targeting framework and created policy space to sustain growth.
The labour market has also shown notable improvement. India’s unemployment rate fell to 4.7 per cent in November 2025 from 5.2 per cent in October, marking its lowest level since April. The decline was particularly pronounced among women, with both rural and urban female unemployment rates easing. Rural unemployment dropped to a new low of 3.9 per cent, while urban unemployment fell to 6.5 per cent. At the same time, labour force participation and worker population ratios rose steadily, signalling that more people are entering and remaining in the workforce. For a country where around 26 per cent of the population is aged between 10 and 24, these trends point to a strengthening link between growth and job creation.
India’s external sector has added another layer of resilience. Merchandise exports rose from $36.43 billion in January 2025 to $38.13 billion by November, supported by strong performance in engineering goods, electronics, pharmaceuticals, gems and jewellery, and petroleum products. Services exports remained a major anchor, expanding by 8.65 per cent to an estimated $270.06 billion during April–November 2025, reflecting India’s growing competitiveness in IT and business services. As a result, the current account deficit narrowed to 1.3 per cent of GDP in the second quarter of FY 2025–26, down from 2.2 per cent a year earlier.
Foreign exchange reserves stood at $686.2 billion in late November 2025, providing import cover of more than 11 months and insulating the economy from external shocks. Foreign direct investment flows strengthened in the first half of the year, with gross FDI rising by 19.4 per cent to $51.8 billion and net FDI more than doubling, even as portfolio flows remained volatile amid global financial tightening.
Looking ahead to 2026, the outlook remains broadly positive. The RBI expects domestic drivers such as favourable agricultural prospects, sustained effects of GST rationalisation, strong corporate and bank balance sheets, and supportive financial conditions to continue underpinning growth.
External agencies largely share this optimism. The World Bank projects growth of 6.5 per cent in 2026, while Moody’s expects India to remain the fastest-growing G20 economy through 2027. The OECD and Asian Development Bank have also upgraded their forecasts, citing resilient domestic demand and ongoing reforms.
Together, these trends position India at a pivotal moment. With high growth, low inflation, improving employment and strong external buffers, 2025 has emerged as a defining year that strengthens India’s trajectory toward becoming the world’s third-largest economy by 2027 and advancing steadily toward its longer-term goal of high middle-income status by 2047.
