How Indian economy slid to 6th-largest in the world, with Japan, UK overtaking

In May last year, Niti Aayog CEO BVR Subrahmanyam declared that India had overtaken Japan to become the fourth-largest economy in the world. But far from becoming the 3rd-largest, India has slid down to the 6th rank.

Why this sudden change?

When the IMF calculates its rankings in US dollar terms, it uses two data points: One, a country’s GDP in the local currency and two, the exchange rate with dollar to arrive at a dollar figure. On both these counts, India has suffered significant setbacks in the last twelve months.

Firstly, India updated its GDP estimates with a new base in February-end. The new GDP estimates essentially showed that the previous GDP series was overestimating India’s GDP. In rupee terms, India’s GDP for 2025-26 was rolled back from Rs 357 trillion (or lakh crore) to Rs 345 trillion.

The second thing that changed is the rupee-dollar exchange rate. The Indian rupee has rapidly lost its value relative to the US dollar over the past year. What’s worse, this fall in the exchange rate has happened when the dollar itself has lost value against other currencies such as the British pound and the Japanese yen. That, in turn, means when the IMF calculates GDP in dollar terms, the gap between Indian GDP and that of the UK’s or Japan’s expands even more.

India’s GDP for 2025, for instance, fell from being $4.1 trillion (according to the earlier GDP estimates) to $3.9 trillion according to the new ones. That in itself allowed Japan to overtake India; and this has happened despite the fact that Japan’s GDP in 2026 ($4.38 trillion) is lower than what it was in 2022 ($4.45 trillion).

In 2026, for similar reasons, the UK is expected to overtake India.

Will India recover? If so, when?

There is a big gap between the top two economies and the rest of the world. The US GDP in 2026 is expected to be $32.38 trillion while China, the second-largest economy, is pegged at $20.85. By itself, the US economy is bigger than all the economies in the European continent put together while China on its own is bigger than the GDP of all the countries that are part of the European Union.

But after the top two, the next four economies are very closely bunched together around the $4 trillion mark. TABLE 1 alongside gives the data for four countries that have been keenly competing for being the best amongst the rest.

As such, according to the IMF’s projections, notwithstanding the setback in 2026, India will retake the position of the 4th-largest economy in 2027 although overtaking Germany to become the third-largest economy is expected to happen in 2031.