The Diplomat
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GDP rankings may grab headlines, but they hide the gaps that actually shape everyday life.
India Is Not the 4th Biggest Economy in the World. But Does That Really Matter?
Authors: Muqtedar Khan, Santosh Mehrotra, and Amir Ullah Khan
For the past few years, India’s national narrative — both in the domestic and the international public sphere — has been markedly triumphalist. The primary drivers of this upbeat and often jingoistic mood are two widely cited claims: that India is now the fourth-largest economy and the fastest-growing major economy in the world.
India has been enjoying, for several years now, the fastest growth rate among major economies, often exceeding 7 percent per annum. The Indian elite has drawn considerable confidence from the assertion that India overtook the United Kingdom to become the world’s fifth-largest economy in 2021 and then, in 2025, surpassed Japan to become the fourth-largest economy in nominal terms. According to this narrative, India was also well on its way to overtaking Germany to become the world’s third-largest economy. Some predicted that this milestone would be reached by 2030, while more optimistic voices suggested it could happen as early as 2027. In reaching that benchmark, India was also expected to cross the symbolic threshold of $5 trillion in total GDP.
But recently, India’s Ministry of Statistics and Program Implementation (MOSPI) announced that it had revised the metric by which it measures India’s GDP. As a result of this new measurement method, India’s total GDP is now reported to be about 3–3.5 percent lower than it would have been under the previous metric, effectively reducing India’s GDP for this year from a forecasted $4.2 trillion to roughly $3.9 trillion. This revision places India once again as the fifth-largest economy in the world and restores Japan to its position as the fourth-largest economy in nominal terms.
What this revision really implies is that much of the nationalist narrative that dominated public discourse over the past year had been overstating the scale of India’s economic progress. The new methodology — widely regarded as more accurate and more reflective of India’s economic reality — not only reduces the overall size of India’s GDP but also lowers India’s per capita income estimates. Under the revised calculations, India’s per capita GDP is now a little above $2,600, roughly $200 less than earlier estimates that placed it closer to $2,900. This also implies that India’s ranking in global per capita income terms has slipped further, keeping it firmly within the lower-middle-income category. Taken together, these revisions suggest that both the size of India’s economy and the average income of its citizens were somewhat overstated under the previous calculation framework.
However, these revisions by MOSPI are not entirely bearers of bad news. One important improvement is that by changing the GDP base year from 2011–12, as used in the previous method of calculation, to 2022–23, the estimation of India’s GDP is now more current, more realistic, and better aligned with the actual underlying structure of the contemporary Indian economy. The revised methodology also incorporates a modernized estimation of the consumer price index (CPI) by updating the contents of the consumption basket and expanding the number of items included. The new CPI basket now contains 358 items, compared to 299 items in the previous basket.
The government of India is suggesting that while the revisions show that the Indian economy is not as big as it was once thought to be, the rebasing has also revealed that India is growing even faster than previously believed. In effect, the government is trying to give the bad news that India is no longer the fourth biggest economy in the world the positive spin that the economy is growing faster than we actually thought. For example, they cite that GDP expanded by 7.1 percent in the fiscal year 2024–25, revised up from an earlier estimate of 6.7 percent. They argue that the revised data suggest that the economy has continued to grow rapidly and that the growth has been more robust than previously thought.
However, economists such as Dhananjay Sinha take a longer and more critical view and argue that, based on the revised methodology, India’s post-pandemic recovery has shown a much lower growth rate than previously reported. According to this view, real GDP growth now works out to roughly 4.8 percent, down from 5.4 percent in the old series. This calculation includes the COVID-19 years, whereas the government is essentially calculating growth data starting from 2022–23, the year considered the first normal year after the pandemic.
Interestingly, Arvind Subramanian, another prominent Indian economist, wrote in a paper for the Harvard Center for International Development as long ago as 2019 that the previous method India was using to calculate GDP growth was overestimating the actual growth. Rather than the roughly 7 percent growth being projected by the government, the growth may have been much closer to about 4.5 percent, he said.
Another important methodological change introduced by MOSPI is the shift toward what can be described as the double-deflator method for calculating Gross Value Added (GVA). Under the earlier system, the government effectively relied on a single inflation estimate for both input costs and output prices. The revised approach calculates these separately — particularly in the manufacturing and agriculture sectors — thereby producing a more accurate estimate of real value added. The adoption of double deflation revealed that India’s manufacturing sector has been more resilient and efficient than previously assumed, essentially because it incorporates changes in input costs that do not get reflected in the single deflator method. As a result, the good news is that manufacturing growth for the current fiscal year has been revised upward from roughly 7 percent to about 10.2 percent
Yet, beyond the political value of claiming that India is either the fourth-largest or the fifth-largest economy in the world, these rankings do not mean very much. They largely serve as vanity metrics and often distract from some of the more serious structural challenges facing the Indian economy. Despite being one of the fastest-growing major economies, India’s development indicators remain weak. According to the United Nations Development Program Human Development Index (HDI), India is ranked 130th, alongside countries such as Bangladesh, with 129 countries performing better on human development indicators. Similarly, on a range of other economic and political measures — including health care, education, employment generation, and press freedom — India’s performance remains relatively poor.
The government has frequently highlighted GDP size and growth rates as proof that the economy is performing well. However, this focus has often served to obscure deeper structural weaknesses and has limited a more serious public discussion about the reforms needed to address them. Of particular concern is uneven and inequitable growth, leading to unprecedented levels of inequality. If India genuinely seeks to transition into an upper-middle-income economy and eventually a high-income economy, it will have to confront these structural challenges directly. India currently enjoys what is often described as a demographic dividend, but within the next two decades, this advantage could turn into a demographic burden if sufficient employment opportunities are not created.
This means that India has only a relatively short window to address fundamental weaknesses in its economy — particularly in health care, the quality of education, employment generation, and the expansion of a competitive manufacturing sector capable of creating large numbers of well-paying jobs. The 2030 deadline for the Sustainable Development Goals looms large, but for improvements in per capita incomes and consequent poverty reduction, this goal too remains elusive.
Credits: TCA, LLC.