{"id":56782,"date":"2025-05-27T11:00:00","date_gmt":"2025-05-27T05:30:00","guid":{"rendered":"https:\/\/www.equentis.com\/blog\/?p=56782"},"modified":"2026-01-23T16:49:08","modified_gmt":"2026-01-23T11:19:08","slug":"india-is-now-the-4th-biggest-economy-what-drove-the-surge","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/india-is-now-the-4th-biggest-economy-what-drove-the-surge\/","title":{"rendered":"India is Now the 4th Biggest Economy. What Drove the Surge?"},"content":{"rendered":"
<\/div>\n

India has emerged as the fourth-largest economy in the world by nominal GDP, overtaking Japan\u2014a historic moment that underlines the shifting axis of global economic power. As per the IMF\u2019s April 2024 World Economic Outlook, India\u2019s GDP stood at $3.73 trillion, ahead of Japan\u2019s $3.67 trillion.<\/p>\n\n\n\n

This isn’t merely symbolic. For a nation that ranked 10th just a decade ago, the climb reflects a decade of sustained structural reforms, resilient domestic consumption, and favourable global macroeconomic tailwinds. While Japan grapples with demographic stagnation and deflationary pressures, India\u2019s youthful economy is expanding in breadth and productivity.  Source: IMF <\/a>World Economic Outlook <\/p>\n\n\n\n

From 5th to 4th: India\u2019s Economic Ascent<\/strong><\/h2>\n\n\n\n

India moved from the 5th spot in 2022, when it overtook the UK, to the 4th spot in under three years. This leap is significant because nominal<\/strong> GDP rankings<\/strong> are affected not just by real output but also by currency movements and inflation dynamics.<\/p>\n\n\n\n

India’s growth story was buoyed by a 6.5 %+ real GDP growth rate<\/strong>, an expanding services sector, and domestic demand that remained resilient in the face of global shocks. In contrast, Japan\u2019s economy contracted in late 2023 and early 2024, registering two consecutive quarters of negative growth, pushing it into a technical recession<\/strong>.<\/p>\n\n\n\n

Structural differences between the two economies played a key role. While Japan has long relied on export-driven manufacturing, India\u2019s services-led economy<\/strong> expanded with minimal global dependence, providing a growth buffer during global slowdowns. <\/p>\n\n\n\n

Metric<\/strong><\/td>India (2024)<\/strong><\/td>Japan (2024)<\/strong><\/td><\/tr>
Nominal GDP (USD Trillion)<\/td>3.73<\/td>3.67<\/td><\/tr>
Real GDP Growth Rate (%)<\/td>6.5<\/td>1.3<\/td><\/tr>
Population (Billion)<\/td>1.43<\/td>0.124<\/td><\/tr>
GDP per Capita (USD)<\/td>~2,600<\/td>~29,000<\/td><\/tr>
Inflation Rate (%)<\/td>~5.0<\/td>~2.8<\/td><\/tr>
Fiscal Deficit (% of GDP)<\/td>5.8<\/td>6.3<\/td><\/tr>
Debt-to-GDP Ratio (%)<\/td>83<\/td>263<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Sources: IMF, Statista, World Bank, Economic Times<\/p>\n\n\n\n

The 5 Economic Engines Behind India\u2019s Rise<\/strong><\/h2>\n\n\n\n

1. Demographic Advantage<\/strong><\/h3>\n\n\n\n

India\u2019s demographic dividend is not just about size\u2014it\u2019s about timing<\/strong>. Over 65% of its population is working age (15\u201364), compared to just 59% for Japan. While Japan\u2019s population is declining from 128 million in 2010 to under 124 million today, India recently became the most populous nation<\/strong>, surpassing China.<\/p>\n\n\n\n

This demographic energy drives consumption, boosts productivity, and keeps healthcare and pension burdens low\u2014something Japan has struggled to manage. By 2050, India is expected to contribute more than one-sixth of global workforce additions<\/strong>, a critical factor for sustainable GDP growth.<\/p>\n\n\n\n

2. Resilient Domestic Demand & Services-Led Growth<\/strong><\/h3>\n\n\n\n

Unlike Japan, which relies heavily on exports, India\u2019s economy is consumption-driven<\/strong>, with nearly 60% of GDP<\/strong> coming from domestic consumption. Due to rapid digital adoption, sectors like IT services, financial<\/strong> services, e-commerce, and telecom<\/strong> have flourished.<\/p>\n\n\n\n

India\u2019s digital public infrastructure<\/strong>, including Aadhaar, UPI, and DigiLocker, has unlocked economic value by improving efficiency, reducing leakage, and creating inclusive systems. Services exports now exceed $325 billion annually<\/strong>, with IT and BPO services commanding over 50% share globally. Source: Livemint<\/a><\/p>\n\n\n\n

3. Fiscal Management and Capital Expenditure<\/strong><\/h3>\n\n\n\n

India has maintained a delicate balance between fiscal expansion and fiscal prudence<\/strong>. While the fiscal deficit remains high (~5.8%), much is directed towards capital creation<\/strong>, not subsidies. Government capex for FY24 reached a record \u20b911.1 lakh crore, emphasizing infrastructure, railways, defence, and digital connectivity.<\/p>\n\n\n\n

In contrast, though historically effective, Japan\u2019s massive stimulus packages have ballooned its public debt to over 260% of GDP<\/strong>, limiting future fiscal maneuverability. India’s investments create long-term productive capacity, while Japan increasingly relies on monetary easing.<\/p>\n\n\n\n

4. Currency Stability and the Weakening Yen<\/strong><\/h3>\n\n\n\n

The Japanese yen has depreciated significantly, falling below \u00a5155 per USD<\/strong> in May 2024, its weakest in decades. This has eroded Japan\u2019s nominal GDP when measured in dollar terms. Meanwhile, the Indian rupee, although volatile, has remained relatively more stable.<\/p>\n\n\n\n

Nominal GDP calculations are sensitive to exchange rates. India\u2019s stable rupee and better inflation targeting have given it a relative edge in dollar-based rankings. A stable INR also attracts more portfolio and FDI inflows<\/strong>, reinforcing GDP growth.<\/p>\n\n\n\n

5. Global Geopolitics and Supply Chain Realignment<\/strong><\/h3>\n\n\n\n

India has strategically positioned itself as a China+1 alternative<\/strong>, especially in electronics, semiconductors, and pharmaceuticals<\/strong>. The Production-Linked Incentive (PLI) schemes and improved Ease of Doing Business have supported this.<\/p>\n\n\n\n

Japan, which pioneered many high-end manufacturing industries, is losing ground as companies look to diversify production bases. India, meanwhile, has emerged as a manufacturing hub for Apple, Samsung, and global auto giants.<\/p>\n\n\n\n

India attracted $71 billion in FDI in FY23<\/strong>, with continued interest from sovereign wealth funds, VC firms, and industrial giants. <\/p>\n\n\n\n

\"\"
Source:<\/strong> IMF, Statista<\/figcaption><\/figure>\n\n\n\n

<\/p>\n\n\n\n

The Road to Becoming the Third-Largest Economy<\/strong><\/h2>\n\n\n\n

Germany currently ranks third with ~<\/strong>$ $5.1 trillion GDP<\/strong>. India needs to bridge a gap of around $1.4 trillion<\/strong>, which it could achieve by 2027 or 2028<\/strong> if it maintains its current growth rate and avoids currency shocks.<\/p>\n\n\n\n

Key to this transition will be:<\/p>\n\n\n\n