India is projected to become the world’s fourth-largest economy in 2025 by nominal GDP, surpassing Japan, according to IMF estimates.
Current Status of Indian Economy
- According to the International Monetary Fund (IMF), India’s nominal Gross Domestic Product (GDP) in 2025 is estimated at $4,187.03 billion, marginally higher than Japan’s GDP.
- By market exchange rate (MER) GDP, India is now the fourth largest economy, behind the United States, China, and Germany.
- The per capita GDP in India was $2,711 in 2024 in current dollar terms, which placed it at the lower end of the list of “lower middle-income countries”.
Market Exchange Rate (MER) Vs Purchasing Power Parity (PPP)
| Aspect |
GDP @ Market Exchange Rate (MER) |
GDP @ Purchasing Power Parity (PPP) |
| Definition |
GDP converted into U.S. dollars using current market exchange rates. |
GDP adjusted based on relative domestic price levels for a common basket of goods/services. |
| Purpose |
Useful for assessing international trade flows, investment, and foreign reserves. |
Provides a more realistic comparison of domestic living standards and consumption capacity. |
| Sensitivity |
Highly volatile; influenced by short-term currency fluctuations and financial markets. |
More stable over time; reflects real cost-of-living differences and domestic price levels. |
| Example |
MER does not reflect price gaps for commodities or services in different economies. |
PPP captures the price difference, showing higher real value of Indian currency domestically.
A Big Mac costs $12 in New York and ₹385 (~$4.50) in Mumbai |
| India’s Rank (2025) |
4th largest economy in the world. |
3rd largest economy since 2009. |
| India’s GDP (2025) |
Approx. $4.19 trillion. |
Approx. $15 trillion. |
| Misinterpretation Risk |
May overstate or understate economic strength based on short-term currency movements. |
May inflate GDP size in poorer countries due to low wages and price levels. |
| Policy Relevance |
Commonly used in financial markets, investor decisions, and budgetary planning. |
More relevant for long-term development analysis, poverty estimation, and global comparisons. |
India’s Target Under ‘Viksit Bharat’
- Vision: To become a developed, high-income country by 2047, aligning with India’s centenary of independence.
Challenges with India’s Growth Story
- Misleading Narratives: GDP based on MER overemphasizes rankings without considering real domestic well-being.
- Low Per Capita Income: Per Capita GDP in India (2024):
- $2,711 (MER), ranking 144th out of 196 countries.
- PPP-based per capita GDP rank is 127th.
- India lags behind Sri Lanka ($4,325) and Vietnam ($4,536) in Per capita GDP (MER) despite being a larger economy overall.
- Informal sector : GDP growth has not been accompanied by a proportionate rise in employment quality or income security.
- The large informal sector and unpaid female labour remain outside formal GDP calculations.
- 76% of casual workers in agriculture and 70% in construction earn below minimum wages (ILO, 2024).
- Sectoral Disparities and Underperformance: Non-traded sectors like health, education, and housing are underfunded.
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- Economic gains have been unequally distributed, favouring capital over labour.
- Absence of reliable social indicators in GDP underrepresents ground realities like nutrition levels, education access, and health infrastructure.
Drivers of India’s growth: Domestic structural reforms
- Unified indirect tax regime (GST): Streamlined India’s fragmented tax structure, boosting compliance and revenue stability.
Example: Gross GST collections averaged ₹1.84 lakh crore per month in early FY 2024–25, up 9.1 percent year-on-year.
- Production-Linked Incentive (PLI) schemes: Catalyzed manufacturing in electronics, pharmaceuticals and automobiles by incentivizing domestic value addition.
Example: The manufacturing value of mobile phones has surged from ₹18,900 crore in FY14 to a staggering ₹4,22,000 crore in FY24.
- Record infrastructure capital expenditure: Accelerated highways, rail and energy projects, cutting logistics costs and easing bottlenecks.
Example: Infrastructure capex rose from 1 percent of GDP in FY 2014 to 3.5 percent in FY 2024.
- Digital public-goods and financial inclusion: UPI and related reforms broadened access to payments and credit, fueling consumption and SME activity.
Example: Unified Payments Interface (UPI) achieved a historic milestone by processing 16.58 billion financial transactions in a single month.
- Labor and ease-of-doing-business reforms: Simplified registration, compliance and dispute resolution, attracting investment in manufacturing and services.
Example: India’s Doing Business ranking improved from 142nd in 2014 to 63rd in 2019.
Drivers of India’s growth: Global economic realignments
- Supply-chain diversification (“China + 1”): Multinationals shifted production to India to reduce overreliance on China.
Example: Foxconn announced a $1.5 billion display-module plant in Tamil Nadu in 2025 to supply a larger share of global iPhone output.
- Surging FDI inflows: Liberalized caps and investor-friendly policies attracted record foreign capital.
Example: India logged $81 billion in FDI in FY 2024–25, more than double its 2013–14 level.
- Demographic dividend: A young workforce expanded the labor pool, underpinning growth in services, manufacturing and consumption.
Example: The working-age population share rose to 65 percent, the highest among major economies.
- Boom in IT-BPM exports: Geopolitical tensions drove global firms to offshore technology and back-office work to India.
Example: IT-BPM revenues reached $254 billion in FY 2024, with exports touching $200 billion.
- Green energy and climate finance: International capital flowed into India’s renewable-energy build-out under global decarbonization drives.
Example: The share of renewable energy (RE) in India’s total foreign direct investment (FDI) inflows surged from approximately 1 per cent in FY21 to nearly 8 per cent in FY 2024-25.
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Way Forward
- Adopt Complementary Indicators: Integrate metrics like Human Development Index (HDI), Gini coefficient, and employment data alongside GDP for a holistic view of economic well-being.
- Improve Data Transparency and Quality: Strengthen statistical systems, ensure methodological consistency, and reduce political interference to maintain the credibility of national accounts.
- Improve Employment Quality and Formalisation: Strengthen minimum wage enforcement and labour market reforms.
- Focus on skill development and digital inclusion.
- Invest in Human Capital: Increase public spending on healthcare, education, and nutrition to create long-term developmental impact.
- Reform Economic Narrative: Avoid overreliance on headline GDP rankings.
- Recognise structural challenges in income inequality, job creation, and institutional capacity.
Conclusion
While India’s rise to the fourth-largest economy by nominal GDP is notable, it offers only a partial picture. For meaningful comparisons and policy direction, composite socio-economic indicators must supplement GDP rankings. Real development should prioritize inclusive growth, employment quality, and social well-being over absolute economic size.
About GDP
- GDP is a monetary measure of the total market value of all final goods and services produced within a country over a specific period.
- Purpose: Used to assess the economic health of a country or region.
Types of GDP
- Nominal GDP Measures economic output using current prices without adjusting for inflation.
- Calculation: All goods and services are valued at their selling prices in the year they are produced.
- Real GDP: An inflation-adjusted measure of economic output, reflecting the actual quantity of goods and services produced.
 Real GDP is calculated using “constant” prices, removing the effect of inflation or price changes.- Estimating Real GDP
- Base year is used to estimate real GDP and is updated every 5-10 years.
- The National Statistical Office (NSO) is responsible for revising the GDP base year to reflect changes in prices and economic output.
- Calculation: Uses a GDP price deflator to account for price changes between the current year and the base year.
- Nominal GDP is divided by the deflator to obtain real GDP.
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Additional Reading: GDP, Base Year Revision
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