Is India the world’s fourth largest economy? 

India's GDP size compared to other countries analyzed, highlighting the complexities and implications of different estimation methods.

Over the past week, much media space was devoted to discussions around the size of India’s economy relative to other economies of the world. These discussions were based on the new estimates of the Gross Domestic Product (GDP) of various countries for 2024 by the International Monetary Fund (IMF), and its annual projections from 2025 till 2030. As per these projections, India’s GDP in 2025 was likely to be $4,187.03 billion, which will be marginally higher than the GDP of Japan at $4,186.43 billion. Thus, in all probability, India will be the fourth largest economy of the world in 2025 after the U.S., China and Germany.

These discussions have stirred the political pot as well. Government sources attributed the improved rank to the leadership capabilities of the Prime Minister. It was also argued that India could grow to be the third largest economy of the world in 2028, and a high-income, developed country (viksit bharat) by 2047.

The GDP of a country tells us very little about how its people live and work, how healthy or educated its people are, and how unequally its aggregate income is distributed. GDP estimates also miss out on measuring several crucial aspects of economic activity that are not covered by markets, such as the unpaid work of women. Hence, there have been repeated calls to revise national account systems, end the predominant use of GDP to assess everything, and use other indicators that allow us to study socio-economic achievements better. Yet, the dominant use of GDP has continued in global and domestic discourse.

In recent years, the politicisation of statistical systems has clouded any objective assessment of India’s economic status. The discussions around India’s rank in GDP size are just an example. Comparison of GDP sizes across countries is a complex effort. International organisations and economists have spent decades trying to perfect a robust methodology for these comparisons. Consequently, there is no single GDP estimate for countries. There are several GDP estimates based on different methodologies and units.

The methodology of estimating GDP in different countries is largely standardised even as there are variations in the quality of data collection. But these estimates are available only in the national currencies of each country. So, how does one compare the GDP size of India and, say, the U.S.? To compare, one needs the GDP estimates of all countries to be in one common unit. This common unit is the U.S. dollar.

But problems remain. There are two ways of converting a GDP estimate in a national currency to a GDP estimate in U.S. dollars. First, one may use market exchange rates from the foreign exchange markets. At the time of writing this article, one dollar was valued at ₹85.69. One may simply divide India’s nominal GDP by ₹85.69 to get a GDP estimate in U.S. dollars, and then repeat that for all other countries and rank them.

According to the GDP estimates based on market exchange rates, India was ranked the fifth largest economy from 2021 (Table 1 and Figure 1). Taken forward, the IMF projects that India will be the fourth largest economy in 2025 and the third largest economy in 2028. The U.S. is ranked first, and China is ranked second.