5 reasons why India may overtake Japan to become 4th largest economy

The International Monetary Fund (IMF) projects that this will happen as early as 2025. The international body estimates Indian economy’s size would be $4.34 trillion, compared to Japan’s $4.31 trillion

India's economy is likely to surpass that of Japan's to become the fourth largest in the world by 2025. File image

India’s economy expanded by 5.4 per cent in the July-September quarter of the ongoing fiscal year, marking a slowdown from the previous quarter’s 6.7 per cent growth.

Despite this deceleration, India maintains its position as the fastest-growing major economy globally.

It’s this kind of sustained growth that had led to expectations that India will surpass Japan to become the world’s fourth-largest economy. The International Monetary Fund (IMF) projects that this will happen as early as 2025.

The international body estimates Indian economy’s size would be $4.34 trillion, compared to Japan’s $4.31 trillion.

Here’s a look at five factors that could be responsible for such an achievement:

2. Strategic government investments: The Indian government, under Prime Minister Narendra Modi, has prioritised infrastructure development and public investment to stimulate economic growth.

   Initiatives like the National Infrastructure Pipeline and the Atmanirbhar Bharat (Self-Reliant India) campaign have attracted significant investments across sectors such as transportation, energy, and manufacturing. They have also bolstered domestic demand and industries.

3. Geopolitical shifts favouring India: Rising geopolitical tensions, particularly involving China, have prompted multinational corporations to diversify their supply chains.

   India has emerged as a favourable alternative under this China+1 strategy, offering political stability and a large, skilled workforce. This shift has led to increased foreign direct investment.

4. 2. Attraction of global investments: India’s financial markets have become increasingly attractive to global investors. The stock market has experienced substantial growth and foreign investor inflows.

      Additionally, the inclusion of Indian government bonds in global indices, including the JP Morgan Emerging Markets index, has enhanced capital inflows, lowered fiscal deficit, and contributed to economic expansion.

   3. Favourable demographics: India’s youthful population provides a demographic dividend, with a growing labor force that supports economic productivity and consumer demand.

      This contrasts with Japan’s aging population, which poses challenges to sustained economic growth.

   4. Domestic demand-driven growth: The strength of India’s domestic demand has been instrumental in its upward growth trajectory.

      Private Final Consumption Expenditure (PFCE) accounted for 60.4 per cent of India’s nominal GDP in June 2024, up from 57.9 per cent in the previous quarter.

      Being the most populous country in the world, India is likely to continue seeing strong domestic demand.