📰India Overtakes Japan, Becomes 4th Largest Economy | Daily India Briefing

The IMF recently announced that India has overtaken Japan to become the world’s fourth largest economy. Today, we dive deeper into the feat and explain how it happened.

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Macro

• The RBI and government will likely keep the 4 percent inflation target. The target is due every 5 years and the submission is due in March. The target guides the RBI’s decisions and tries to keep inflation within 2 to 6 percent over the medium term.  

Equities

• Air India is looking for a new CEO after profitability and safety issues. Current CEO Campbell Wilson will miss profitability goals by this quarter and a crash last June that killed over 200 people still has no reported cause. 

• SBI Funds is looking for a $1.4 billion (₹126 billion) IPO raise in 1H26. India’s largest asset manager would be valued at $14 billion (₹1.3 trillion); it is jointly owned by State Bank of India and Amundi.  

• IndiGo is expecting a formal letter from the sector regulator on its lapses. The thousands of flight cancellations last month left over 500,000 passengers stranded. Antitrust bodies are also looking into the firm given its 66 percent market share for domestic flights. 

Alts

• Officials in India, France, and Malaysia are reviewing Musk's X and Grok for offensive images. The AI is being used on X to manipulate images of women and children to produce harmful content. Musk has to submit a report of action taken to India’s government by January 6 and may still face legal action under criminal and IT laws. 

• Universal Music is buying a 30 percent stake in Bollywood's Excel Entertainment for $80 million (₹7.2 billion). The movie production company gives UMG a stronger position in India. Global distribution rights for Excel movie soundtracks will likely change hands with UMG. 

Policy

• The government is asking oil refiners for their weekly Russian imports and aiming for 1 million barrels per day or less. Officials want direct reporting to tell trade negotiators so that a US deal can be clinched. 

• Trump, post-Maduro capture, threatened higher tariffs on India if Russian oil-buying continues. India likely will have to pick a side rather than operating in a ‘grey zone’ of trying to appease the US while still importing Urals. 

• China and Pakistan reaffirmed their ties at the same time the US outreach to Islamabad deepens. China offered to boost the CPEC which is how Xi has poured billions into projects in Pakistan. The statement also offers to continue building the mining and agricultural industries in Pakistan. Earlier in the year, Trump had allowed for a $397 million (₹35.7 billion) program to use F-16 jets in counterterrorism units.

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How India Overtook Japan to be the 4th Largest Global Economy, and Why Germany is Next

India has overtaken Japan as the world’s 4th largest economy (according to the IMF’s April 2025 WEO) at $4.2 trillion (₹378 trillion) and is well on track to surpass Germany by 2029; the European leader produces $5 trillion (₹450 trillion) right now. 

The government’s recent economic review — published at the end of 2025 — focuses on India’s growth factors like domestic demand, overall macro stability, and new structural reforms. The note focuses on India’s goal to become developed by 2047 and how inflation, unemployment, and growth all align to make that vision realistic. 

Growth has surprised to the upside with GDP growth hitting a six-quarter high in 4Q25 at 8.2 percent y-o-y. Resilient private consumption and foreign investment activity has driven it up. Other growth factors included the remittance growth of 10.7 percent y-o-y while FDI grew 19.4 percent to hit $51.8 billion (₹4.6 trillion) for the year. All of this led to gross value added rising by 8.1 percent, mostly catalyzed by the buoyant industrial and services industries. 

India’s weakest macro component has long been the labor market, though employment outcomes are now improving. The unemployment rate is now 4.7 percent with the largest gains being for urban women unemployment which fell from 9.7 to 9.3 percent and rural women whose stat went from 4 to 3.4 percent. The labor force participation rate also climbed to 55.8 percent, though this is still weak compared to developed economies like the US which frequently sit at 65 percent. The worker participation rate or number of 15 year olds or older who hold employment is now 53.2 percent. Though there is still a long road ahead, the government also acknowledged that it has to capitalize on its demographic dividend soon to achieve developed status.  

Inflation has been benign with CPI at 0.25 percent in October due to food prices correcting. The RBI is finally being given some space to cut rates, though the rupee weakness is a deterrent, and inflation for this upcoming year is projected to sit between 2-3 percent. Inflation being within the RBI’s proposed target band is also offering space to support growth without the rupee becoming devalued at a quick pace. 

The external sector has also shown resilience and growth in the face of US tariffs. Cumulative exports will likely be up around 5 percent after final data is tallied mostly due to engineering goods, pharma, and electronics. Trade partnerships have also been strengthened with the UK, New Zealand, and Oman with other agreements on the way with the EU and, significantly, the US. 

Taken together, the report helps piece together how India has overtaken Japan to sit around $4.1-4.3 trillion (₹369-387 trillion). Global institutions and the RBI have all increased their growth expectations for India from about 6.7 percent to over 7.2 percent in most cases. With the country’s existing tailwinds and additional growth opportunities in trade and employment in 2026, passing Germany by 2027 seems well within question.

See you tomorrow.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

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