India Overtakes Japan to Become World’s 4th Largest Economy at USD 4.18 Trillion 

In December 2025, the Government of India (GoI) announced that India has overtaken Japan to become the world’s 4th largest economy with a Gross Domestic Product (GDP) valued at USD 4.18 trillion.

• With this, India now lags behind only the United States of America (USA) which continues to be the world’s largest economy, followed by China (2nd) and Germany (3rd).

Key Details:

Other Key Projections: The GoI further mentioned that India is on track to surpass Germany and become the world’s third-largest economy within the next 2.5–3 years, with its GDP projected to reach approximately USD 7.3 trillion by 2030.

GDP Growth: As per the GoI’s official data, India’s real GDP has increased by 8.2% in 2nd Quarter(Q2: July-September) of Financial Year 2025-26 (FY26) compared to 7.8% and 7.4% recorded in Q1FY26 and Q4FY25, respectively.

• This growth was mainly driven by resilient domestic demand amidst global trade and policy uncertainties.

Key Target: India aims to attain the High Middle-Income (HMI) status by 2047, marking the centenary (100th) of the country’s Independence.

Foreign Exchange Reserves: As of November 2025, India’s foreign exchange reserves stood at USD 686.2 billion, providing a strong import cover of over 11 months.

Current Account Deficit (CAD): The CAD moderated from 2.2% of GDP in Q2 FY25 to 1.3% in Q2 FY26. Inward remittances rose by 10.7% year-on-year in Q2 FY 2025-26.

Foreign Direct Investment (FDI): The FDI captured strong momentum in H1 FY26. From April to September 2025, Gross FDI grew 19.4% to USD 51.8 billion from USD 43.4 billion a year ago, while Net FDI surged 127.6% to USD 7.7 billion from USD 3.4 billion.

Foreign Portfolio Investment (FPI): FPIs recorded net outflows of USD 0.7 billion in FY26 (April–December 03), primarily driven by equity segment outflows.

External Commercial Borrowings(ECB): Flows under ECB and non-resident deposit accounts moderated to USD 6.2 billion (April–October, FY26) from USD 8.1 billion last year.

• Non-resident deposits recorded net inflows of USD 6.1 billion (April–September, FY26), lower than USD 10.2 billion in the same period of FY25.

Key Terms:

Current Account Deficit(CAD): The CAD arises when a country’s total imports of goods, services, and transfers surpass its total exports.

Foreign Direct Investment(FDI): Investment made by a foreign entity/company directly into a country’s businesses, assets, or projects, giving the investor ownership control or significant influence.

Foreign Portfolio Investment(FPI): Investment by foreign investors in a country’s financial assets, like stocks, bonds, and mutual funds, without controlling ownership.

External Commercial Borrowings(ECB): Loans or credit raised by domestic companies or financial institutions from foreign lenders, often used for capital investment, expansion, or refinancing.