India has surged ahead of Japan to claim the title of the world’s fourth-largest economy, boasting a GDP of USD 4.18 trillion. This milestone underscores the nation’s resilience, with real GDP expanding 8.2% in Q2 FY 2025-26—a six-quarter high driven by strong domestic demand, says an official release.
As projections eye USD 7.3 trillion by 2030, displacing Germany soon, policymakers celebrate a rare “goldilocks period” of high growth and low inflation.
Growth Momentum Accelerates
Robust private consumption and industrial buoyancy propelled real GDP growth to 8.2% in Q2 FY 2025-26, surpassing the prior quarter’s 7.8%. The Reserve Bank of India (RBI) upgraded its FY 2025-26 forecast to 7.3% from 6.8%, citing factors like GST rationalization, softer oil prices, and front-loaded government CAPEX. Meanwhile, real gross value added (GVA) rose 8.1%, fueled by services and manufacturing sectors. Favorable agriculture, strong corporate balance sheets, and benign financial conditions promise sustained momentum, even amid global trade tensions.
High-frequency indicators reinforce this trajectory: urban consumption strengthens, credit flows to businesses expand, and services exports hold firm. However, external risks like policy uncertainties linger, yet India’s domestic drivers provide a solid buffer.
Unemployment Hits Record Lows
Employment bridges growth and prosperity, especially for India’s youthful population where 26% fall aged 10-24. The Periodic Labour Force Survey (PLFS) reveals sharp declines: unemployment rate (UR) for ages 15+ dropped to 4.8% in November 2025 from 5.4% in October—the lowest since April. Rural UR hit a new low of 3.9%, urban at 6.5%, with women’s UR falling notably (urban: 9.3%, rural: 3.4%).
Labour Force Participation Rate (LFPR) climbed to 55.8%, a seven-month high, while Worker Population Ratio (WPR) reached 53.2%. These gains signal inclusive recovery, boosted by rural jobs and rising female engagement. As economic activity accelerates, job creation forms a virtuous cycle, absorbing the workforce productively.
Key Question: Can India sustain this job momentum to harness its demographic dividend?
Inflation Cools to Historic Lows
Consumer Price Index (CPI) inflation eased dramatically in 2025, starting at 4.26% in January and plunging to 0.25% in October—well below RBI’s 4% target with ±2% band. Food price corrections defied seasonal norms, lifting headline CPI to 0.71% by November. RBI slashed its FY 2025-26 forecast to 2.0%, with quarterly paths at 0.6% (Q3) and 2.9% (Q4).
Wholesale Price Index (WPI) mirrored this, dipping to -0.32% in November from April’s 0.85% low. Consequently, RBI cut the repo rate by 25 basis points to 5.25%, adopting a neutral stance to balance growth and stability. This benign environment empowers monetary policy while enhancing purchasing power.
Trade and External Resilience Shine
Exports kicked off strong: January 2025 merchandise hit USD 36.43 billion, rising to USD 38.13 billion by November, led by engineering goods, electronics, pharma, and petroleum. Cumulative April-November services exports grew 8.65% to USD 270.06 billion. Total exports in January surged 9.72% year-on-year.
Foreign reserves stood at USD 686.2 billion by late November, covering over 11 months of imports. Current Account Deficit narrowed to 1.3% of GDP in Q2 FY 2025-26, aided by 10.7% remittance growth. FDI jumped: gross up 19.4% to USD 51.8 billion (April-September), net soaring 127.6% to USD 7.7 billion. Trade pacts with UK, Oman, and New Zealand diversified partnerships.
Global Forecasts Boost Confidence
Institutions rally behind India’s story: RBI at 7.3% for FY26; World Bank 6.5% (2026); IMF 6.6% (2025); OECD 6.7% (2025); S&P 6.5%; ADB 7.2%; Fitch 7.4%. This broad-based optimism, alongside falling unemployment and inflation, positions India for high middle-income status by 2047.
| Indicator | November 2025 | Prior Trend | Impact |
| GDP Growth (Q2) | 8.2% | Up from 7.8% | Strong demand |
| Unemployment Rate | 4.8% | Down from 5.4% | Job gains |
| CPI Inflation | 0.71% | Historic low | Policy space |
| Exports (Merch) | USD 38.13B | Upward trend | Resilience |
| Forex Reserves | USD 686.2B | Robust cover | Stability |
Q&A: Decoding India’s Economic Edge
Q: What drives India’s GDP surge?
A: Domestic demand, GST reforms, low oil prices, and CAPEX front-loading fuel 8.2% Q2 growth.
Q: Why has unemployment fallen?
A: Economic expansion creates jobs; PLFS shows rural and female gains, with UR at 4.8%.
Q: Is inflation under control?
A: Yes, CPI at 0.71% enables RBI rate cuts, supporting consumption.
Q: How resilient is the external sector?
A: Reserves at USD 686B, narrowing CAD, and FDI boom signal strength.
FAQ
What is India’s current global rank?
Fourth-largest economy, surpassing Japan at USD 4.18 trillion GDP.
When will India hit third place?
In 2.5-3 years, targeting USD 7.3 trillion by 2030.
What defines the ‘goldilocks period’?
High growth (7.3% forecast) with low inflation (2% CPI).
How do exports perform in 2025?
Merchandise up steadily; services +8.65%, diversified markets.
