India is likely to surpass Japan as the 4th largest economy by FY25

Ira Singh
Khabar Khabaron Ki,15 May’24

India’s strong economic growth (GDP) over the past few decades suggest that the country is likely to overtake Japan as 4th largest economy in the world by 2025.The optimistic outlook expressed by India’s G20 Sherpa and former CEO of Niti Aayog Amitabh Kant signifies India’s indomitable influence in the international arena, with far-reaching implications for trade, investment, and geopolitical dynamics.

The size of India’s GDP is currently ranked 5th, after the US, China, Germany, and Japan. It overtook the UK in 2022. Just a decade ago, Indian GDP was the eleventh largest in the world. Currently, India’s GDP is estimated to be around USD 3.7 trillion,according to estimates.Firm GDP growth forecasts, inflation at manageable levels, political stability at the central government level, and appreciable central bank monetary policy, have all contributed to painting a bright picture for the Indian economy in recent quarters.India’s GDP grew at a massive 8.4 per cent during the October- December quarter of the financial year 2023-24, and the country continued to remain the fastest- growing major economy and is likely to maintain its growth trajectory in the years ahead.

Japan has suffered from sluggish economic growth and recession since the 1990s, a phenomenon dubbed “Japan’s Lost Decade.”Japan’s economy navigated a challenging landscape in 2023: After real gross domestic product fell by an annualized 3.2% in the third quarter, the country narrowly avoided recession when real GDP grew by a mere 0.4% in the last quarter of the year. Household and government consumption have been notably weak, while business investment rebounded at the end of 2023. Meanwhile, a very weak exchange rate has kept exports growing strongly. The modest economic recovery, combined with a strong depreciation of the yen, caused Japan to slide from being the third to the fourth largest economy in the world in US dollar terms, trailing the United States, China, and now Germany.

A stronger economic recovery and an appreciation in the value of the yen against the dollar this year could allow Japan to regain its standing as the third largest economy by 2025. Indeed, the Bank of Japan (BOJ) tightened monetary policy in March,3( as per reports) which should support the value of the yen. However, the yen has since weakened further as uncertainty around the future path of monetary policy—both in Japan and around the world persists.

India is set to remain the fastest-growing among major economies in 2024. In latest estimates released in April, International Monetary Fund, raised India’s growth projections for 2024 from 6.5 per cent to 6.8 per cent. It further indicated that India’s nominal GDP will reach $4.34 trillion in 2025, surpassing Japan’s $4.31 trillion. The timing of India’s surge into fourth place in the world comes one year earlier than the IMF’s last estimate, due in large part to the weakness of the Japanese yen.

The Organization for Economic Cooperation and Development (OECD), further lowers growth forecast for Japan, in its latest report,despite global upward trend. While the OECD predicts growth of 3.1% for the world as a whole, up from 2.9% in its February report, and has forecast that both the US and China will outpace previous predictions, the Paris-based organization cut Japan’s likely growth from the 1% it had projected three months earlier to just 0.5%.

India’s economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22, respectively, stated report.