In its recent World Economic Outlook, IMF has raised India’s GDP growth forecast to 7.6 per cent from 7.3 per cent for FY26 and to 6.5 per cent from 6.4 per cent for both FY27 and FY28 despite heightened geopolitical uncertainty and unprecedented global energy crises. At the same time, world output growth has been cut by 0.2 percentage points, Germany’s by 0.3 and the UK’s by 0.5, while Japan’s growth remains unchanged at 0.7 per cent for 2026.
What has made headlines is the Indian economy slipping to sixth position globally after briefly surpassing Japan to climb to fourth in 2025. The UK economy, which India had overtaken in 2022, has regained the fifth position. To the casual observer, this appears to signal a reversal of economic reality — Japan and UK resurgence alongside an Indian slowdown. Neither is the Indian economy slowing absolutely or relatively nor is there any sign of a reversal in trajectory.
Post pandemic, India has registered a real GDP growth rate of CAGR 8 per cent since FY22, retaining the tag of the world’s fastest-growing major economy. Economic Survey 2026 highlights that medium term growth potential has strengthened to 7 per cent, above the IMF’s forecast of 6.5 per cent for FY27 and FY28. By comparison, the UK and Japan registered a CAGR of 3.2 per cent and 1.3 per cent, respectively, between 2021 and 2025, far below India’s pace, while their medium-term outlook continues to weaken.
Fiscal consolidation
India’s performance on the fiscal front is equally commendable. The fiscal deficit has been reduced from a high of 9.2 per cent in FY21 to 4.4 per cent in FY26. Gross general government debt has declined from 90.6 per cent of GDP in FY21 to 84.1 per cent of GDP in FY26. While UK debt fell from 104.8 per cent of GDP in 2020 to 99.9 per cent in 2024, it is projected to rise again and reach 104.1 per cent by 2027. Although Japan’s debt has moderated since the pandemic, it remains above 200 per cent of GDP in 2025 — the highest among advanced economies by a wide margin.
Due to post-pandemic fiscal consolidation and supply-side measures by the Indian government, along with RBI rate hikes after the war in Europe to cool inflation expectations, disinflation took hold, touching a record low of 0.25 per cent in October 2025. Although India’s dependence on imported oil and gas is significant, it possesses enough fiscal space to cushion external price shocks whenever required.
Ideally, the currency movement should be driven by macroeconomic fundamentals, inclusive growth and internal productivity. Yet, as the IMF has often noted, exchange rate movements are frequently induced by safe haven flows or monetary policy shifts in advanced economies. As a result, the pound appreciated, the pace of yen depreciation slowed in 2025 and the rupee weakened in FY26. The IMF’s latest World Economic Outlook raised the nominal GDP of both Japan and UK for 2025 in their respective local currencies while India’s was reduced due to base year revision. The combined impact of nominal GDP revisions and currency movements means India will overtake the UK by FY28, Japan by FY28 instead of the earlier projected FY27 and Germany by FY32 instead of the earlier FY30.
Despite weak macroeconomic fundamentals, vulnerabilities and structural rigidities, Japan and the UK have regained fourth and fifth global GDP ranks respectively after India had earlier surpassed them.
The prevailing practice of comparing economies by translating GDP into dollar terms is a lazy approach. It neither reflects true economic performance nor captures cost-of-living realities. The more appropriate benchmark — and one the world must increasingly adopt — is purchasing power parity.
In PPP terms, India’s slip to sixth position does not exist. India remains the world’s third-largest economy, trailing only China and the US.
The writer is an Economist & Columnist and a member of the Bharatiya Janata Party
Published on April 23, 2026