IMF: India will surpass Japan to become the 4th largest economy by 2025

India's nominal GDP will surpass Japan's by 2025 to become the world's fourth-largest economy , a year earlier than previously forecast.

In a report released on April 21, the International Monetary Fund (IMF) estimated that India's nominal GDP could reach nearly $4.34 trillion by 2025. Meanwhile, that figure for Japan is about $4.31 trillion.

In October, the IMF predicted that India would overtake Japan by 2026. In its April update, the organization slightly revised up its GDP growth forecasts for both countries in local currency terms. However, the depreciation of the yen appears to be reducing the value of Japan’s economy in dollar terms.

Last year, Germany overtook Japan as the world's third-largest economy. If overtaken by India, it would drop to fifth place.

The value of the Indian rupee against the US dollar has been largely unchanged since early 2023, due to what appears to be intervention by the Reserve Bank of India. It is currently trading at 83 rupees to the US dollar.

In its December 2023 report on India, the IMF noted that authorities’ intervention in the currency market may have been excessive. The country’s central bank countered that the IMF was making flawed analysis based solely on short-term exchange rate trends.

India's nominal GDP ranked 10th in the world as of 2014. According to the IMF, the country is expected to surpass Germany to become the world's third largest economy by 2027. India surpassed Japan in domestic auto sales by 2022 to become the third largest auto market, after China and the United States.

Despite India's COVID-19 woes, the economy has recorded strong growth in recent years thanks to a rising population. The Reserve Bank of India expects GDP to grow by 7% in real terms in FY24.

India’s growth is expected to accelerate in the coming years, driven by consumption, investment from both domestic and foreign businesses, and exports. The Make in India program, along with many companies looking to move out of China, will further boost India’s manufacturing sector. In addition, the services sector will be boosted by rapid population growth.

The country's GDP growth is expected to average more than 6% annually until 2028, among the highest in Asia, but it is confident it can accelerate to 7% thanks to the strength of its financial sector and recent reforms.

Moreover, with reasonable assumptions on inflation and exchange rate differentials, India could become a $7 trillion economy in the next 6-7 years. This is also similar to the IMF's previous assessment that India will be a bright spot in the Asian economy with steady growth at 6.5% in 2024-2025.

Previously, S&P Global also assessed that India will continue to grow in the next three years and lead the growth in the region. The organization forecasts India's GDP to grow at 6.5% in fiscal year 2025 and 7% in 2026.

Duc Minh ( according to Nikkei, IMF )

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