Dhruva Kumar on India’s Rise: How Becoming the Fourth-Largest Economy Shapes Global Strategy

India’s emergence as the world’s fourth-largest economy, surpassing Japan with a nominal GDP of $4.187 trillion in 2025, marks a pivotal moment in global economics. On a purchasing-power-parity (PPP) basis, India is consistently ranked as the world’s third-largest economy after China and the U.S., reflecting its huge population and domestic market. For example, international agencies note India “already operates like a $16 trillion economy” in PPP terms. These leaps in ranking from 10th in 2014 to 4th in 2025 nominally mark India’s rapid catch-up.  While this milestone underscores India’s rapid growth trajectory, it also raises critical questions about its sustainability and geopolitical ramifications.

India has negotiated well free trade agreements (FTA) with major economies e.g. India–UK FTA, ongoing India–EU talks, UAE, Australia, etc., which is already boosting trade. India’s economic rise positions it as a counterweight to China in Asia, offering democracies a strategic partner to diversify supply chains and reduce reliance on Beijing. PM Narendra Modi’s vision of a “Viksit Bharat” by 2047 hinges on leveraging this momentum to amplify India’s voice in multilateral forums like the G20, BRICS, WTO, and UN. However, analysts caution that India’s geopolitical clout will depend on its ability to address internal disparities and streamline policymaking.

Sectoral Growth Drivers like Manufacturing & Construction: Q4 FY2025 growth of 7.4% was fuelled by these sectors, reflecting gains from production-linked incentive (PLI) schemes and infrastructure investments. Services & Digital Economy that includes IT, finance, and professional services remain robust, supported by a tech-savvy workforce and expanding digital infrastructure.

India’s limited reliance on goods trade insulates it from some external shocks, but weakening global demand and protectionist policies (e.g., U.S. tariffs) pose risks. The IMF warns that trade slowdowns could trim growth unless domestic consumption and investment fill the gap.

The IMF and World Bank project India’s economy to remain the fastest-growing major economy. While celebrating the $4 trillion milestone, economists urge deeper reforms like reducing Bureaucracy and simplifying land acquisition and labour laws to attract manufacturing FDI. Fiscal Prudence, managing subsidies and inflation (3.16% in April 2025) to enable further rate cuts. Equitable Growth, bridging urban-rural divides and ensuring benefits reach marginalised communities.

Despite overtaking Japan, India’s per capita GDP remains a fraction of advanced economies, highlighting the need for inclusive growth. The World Bank notes that 5% of Indians still live in extreme poverty, underscoring unresolved socioeconomic gaps.

India aims to surpass Germany’s $4.5 trillion economy by 2027, targeting a $5 trillion GDP. Achieving this requires sustained 7%+ growth, which analysts deem feasible if reforms accelerate and global headwinds ease. However, Arvind Virmani, NITI Aayog member, tempers expectations: “The journey from $4 trillion to $5 trillion will demand more than optimism, it needs execution”.

India’s economic leap is undeniably historic, reflecting two decades of liberalisation and demographic dividends. Yet, the euphoria must not overshadow systemic challenges. As the U.S. and EU court India for strategic partnerships, New Delhi must balance global ambitions with domestic stability. The world gains a multipolar economic actor, but India’s true test lies in translating size into sustainable influence.

In PM Modi’s words, India is at a “take off stage”. Whether it soars or stumbles will shape not just its future, but the global economic order itself.