India’s Ascension to the 4th Largest Global Economy: A Substantial GDP Increase, But Who Really Benefits? Is This Progress All-Encompassing?

India’s Economic Ascendancy: A Mixed Picture of Growth and Inclusivity

India’s emergence as the fourth-largest economy globally is indicative of remarkable progress; nevertheless, the issues of inclusivity, wealth distribution, and individual prosperity remain pressing concerns. According to the April edition of the International Monetary Fund (IMF) World Economic Outlook report, India’s nominal Gross Domestic Product (GDP) is projected to approximate $4,187.017 billion for the fiscal year 2026.

Transition from Tenth to Fourth Largest Economy

Shifting from being the tenth largest economy in 2014 to the fourth largest in just over a decade is a significant achievement. India has seen its GDP nearly double during this period. As per IMF data, India’s GDP was pegged at $2.0 trillion in 2014 and is expected to rise to approximately $3.9 trillion by 2024, a substantial increment of roughly $1.9 trillion over ten years. The April IMF report also indicated that India is set to surpass Japan by the end of 2025, with its nominal GDP projected to exceed Japan’s estimated $4,186.431 billion. Furthermore, the report anticipates Indian economic growth at 6.2% for 2025 and 6.3% for 2026, maintaining a strong lead over both global and regional competitors.

Current Growth Trajectory

In the recent data released by the National Statistics Office (NSO) on May 30, India recorded an increase in economic growth to 7.4%—surpassing expectations—but fell short of preventing the economy from experiencing its slowest growth since the pandemic in fiscal year 2025. Projections suggest a slowing full-year growth rate to a four-year low of 6.5% for FY25, a notable decline from the 9.2% growth achieved in FY24. However, analysts affirm that India is likely to retain its status as the fastest-growing major economy across the globe. Economists predict a real GDP growth of 6.5% for FY26, although potential external headwinds may present challenges. On a positive note, improving domestic consumption is expected to bolster industrial activities.

Critical Questions for India’s Growth

Despite the rosy outlook, several pivotal questions linger: How did India attain such remarkable growth? Is this progress sustainable? Despite rapid economic advancement, why does India’s per capita income remain relatively low? What strategies are needed for India to evolve into a $5 trillion economy and ascend to the world’s third-largest economy? The successful trajectory can be attributed to a blend of structural reforms, strategic investments, and favorable global conditions. Analysts argue that sound fiscal and monetary policies have laid the groundwork for stable GDP growth, which is forecasted to continue in FY26 at 6.2 to 6.5%. Significant contributors to this growth include the burgeoning service sector, technology industry, and domestic demand. Reforms such as the introduction of the Goods and Services Tax (GST) in 2017 and corporate tax reductions in 2019 have improved the business climate, attracting investments and stimulating economic activity. Moreover, the manufacturing and construction sectors have played a vital role in recent GDP growth, indicating enhanced industrial activity and infrastructure development. Government initiatives like ‘Make in India’ alongside robust public capital expenditure have also fueled industrial and infrastructural growth, thereby fortifying economic resilience. Furthermore, geopolitical shifts, notably the realignment of global supply chains amid US-China trade disputes, position India as a desirable hub for investment and manufacturing.

Challenges of Inclusivity

SBI Capital Markets has issued a report suggesting a rise in private consumption (PFCE) in FY26, aided by necessary tax relief for the middle class. Additionally, rural incomes may improve thanks to favorable rainfall patterns, though the timing and distribution remain critical. Stable trade balances supported by low commodity prices, bolstered by strong foreign exchange reserves and effective management, further indicate potential for growth. The Reserve Bank of India (RBI)’s monetary flexibility, due to managed inflation, is expected to support investment moving forward.

Despite these encouraging developments, Manoranjan Sharma, Chief Economist at Infomerics Ratings, emphasizes the need to foster a more inclusive and equitable growth process. He warns against over-reliance on nominal GDP comparisons, highlighting that such assessments may overlook significant issues including per capita income, poverty levels, unemployment, regional discrepancies, and the disproportionate distribution of income and wealth.

Measuring Growth: Inclusivity Concerns

Amidst the celebration of this economic achievement, a critical question arises: Is this growth truly inclusive? While nominal GDP figures reflect India’s substantial strides in outpacing some significantly larger economies, rising at an average rate of 6-7% since 2004, the country still grapples with a low per capita GDP, especially considering its status as the world’s most populous nation. Disturbingly, India does not rank within the top 100 for GDP per capita or Purchasing Power Parity (PPP) metrics.

Defining GDP vs. PPP

To appreciate the nuances between these two measurements, one must recognize that GDP per capita indicates the average annual income of an individual within the country, serving as an indicator of wealth distribution. In contrast, PPP reflects the relative purchasing power of money in the economy. India, when evaluated using PPP, was already the third-largest economy prior to the current government taking office, with estimated figures of approximately $29 trillion for China, $24 trillion for the United States, and roughly $11 trillion for India. Despite overtaking the United Kingdom in 2021, India’s per capita GDP of $2,250 starkly contrasts with the UK’s at $46,115—more than 20 times higher—indicating that while India’s total nominal GDP surpasses the UK’s, its per capita income growth remains woefully inadequate, rising just $600 from 2021 to 2025, compared to over $8,000 in the UK during the same period.

India’s Future Economic Position

The recent assertion from Niti Aayog’s CEO BVR Subrahmanyam notes India’s ascendance to the fourth-largest economy, with its nominal GDP projected at $4.187 trillion, edging past Japan’s GDP of $4.186 trillion by the end of 2025. Despite this advancement, a stark contrast persists between Japan’s impressive per capita GDP of $33,900 and India’s modest per capita GDP of $2,880, categorizing India as a low-middle-income, developing economy. Conversely, Japan represents a wealthier, more advanced society with longstanding challenges, such as an aging population, yet it maintains a prominent place within the upper echelons of the global economy due to its innovation and international business engagement.

Challenges in Employment and Inclusivity

Even when adjusting for purchasing power parity, India’s figures remain significantly below the global average, with a standing of only 40% of the world average. India’s demographic status as the most populous country, currently at 1.4 billion, dilutes the benefits expected from GDP doubling. High informal employment rates (around 90% of the workforce) and low female workforce participation (26% compared to the global average of 47%) further constrain per capita growth. Nevertheless, IMF data shows a consistent reduction in unemployment, from 8.9% in 2018 down to 4.9% in 2025. The first-ever job survey conducted by the Ministry of Statistics and Programme Implementation (MOSPI) reported a monthly unemployment rate of 5.1% in April 2025.

Path Ahead for Inclusive Growth

For India—and indeed for all nations—the journey towards inclusive growth remains a challenging but essential task. Sustaining the structural reforms while advancing the developmental agenda will be paramount. Initiatives focused on skill development, job creation, financial inclusion, and technological advancement are crucial objectives for the current administration as it navigates the remainder of its term. Manoranjan Sharma asserts that government intervention is vital in mitigating economic inequality while promoting sustainable growth. Prioritizing broad-based economic expansion to ensure benefits reach all social strata and regions is imperative. Strengthening the MSME sector, creating conducive environments for inclusive development, and leveraging financial institutions as transformation catalysts are essential strategies to counteract inequality and advocate for sustainable, equitable growth.

Conclusion

In summary, India’s economic progression has been noteworthy over the past decade; however, underlying issues pertaining to inclusivity, equity, and long-term viability demand earnest attention. For India to cement its status as an economic powerhouse, growth must be inclusive—extending benefits beyond metropolitan centers, the formal sector, and the wealthiest individuals. Transitioning towards a $5 trillion economy necessitates not just larger statistics but ensuring these figures translate into improved quality of life for every Indian citizen.