India has officially overtaken Japan to become the world’s third largest economy in nominal US dollar terms, according to the International Monetary Fund’s latest World Economic Outlook database published this week. With a GDP of $4.34 trillion in 2025, India now trails only the United States ($29.2 trillion) and China ($19.5 trillion) in the global economic rankings — a milestone that reflects two decades of sustained growth averaging approximately 7% per year and marks a profound shift in the balance of global economic power toward Asia.
The achievement, which Prime Minister Narendra Modi described as “a testament to the aspirations and hard work of 1.4 billion Indians,” had been widely anticipated by economists who had tracked India’s rapid convergence with Japan’s stagnating economy over the past several years. Japan’s GDP, measured in dollars, has been held back by a combination of weak domestic growth, demographic decline and the depreciation of the yen, which has lost approximately 35% of its value against the dollar over the past five years.
India’s economic rise has been driven by a combination of favourable demographics — the country has the world’s youngest large population, with a median age of 28 — rapid expansion of the technology and services sector, significant infrastructure investment under the Modi government and growing integration into global supply chains as multinational companies seek to diversify away from China. The country is now the world’s largest producer of generic pharmaceuticals, the second largest producer of mobile phones and a major global hub for financial technology, business process outsourcing and software development.
For the United Kingdom, India’s rise presents both opportunities and strategic imperatives. The two countries have been negotiating a comprehensive free trade agreement since January 2022, with talks periodically stalling over disagreements on tariffs on Scotch whisky, Indian immigration to the UK and access to professional services markets. A successful conclusion to the FTA negotiations, which both sides have indicated they hope to achieve in 2026, could unlock significant trade and investment flows.
The UK-India bilateral trade relationship is already substantial, valued at approximately £42 billion annually, with Indian companies representing one of the largest sources of foreign direct investment into the UK outside of the United States and Europe. Tata Group alone, through its ownership of Jaguar Land Rover, Tata Consultancy Services’ UK operations and Tata Steel’s Port Talbot facility, employs over 60,000 people in Britain.
Economists note that India is on track to overtake Germany and become the world’s fourth largest economy in purchasing power parity terms within the next decade, and most projections suggest it will become the second largest economy in nominal dollar terms by the mid-2040s — a transformation that will fundamentally reshape global trade, finance and geopolitics.
— Thomas Hargreaves, London Capital Post
