India is no longer the fourth-largest economy in the world. But domestic reform agenda matters more than ranking

According to the IMF’s latest World Economic Outlook, India has slipped to sixth place in the world GDP rankings, with Japan and the UK overtaking it in terms of nominal GDP in current US dollars. For 2026, the IMF has estimated the Indian economy at $4.15 trillion, up from $3.92 trillion the year before. In comparison, the size of the UK’s economy has been pegged at $4.27 trillion and that of Japan at $4.38 trillion, marginally edging out India.

There are two main reasons why India has slid on these rankings. The first is a change in how GDP is estimated. Under the new methodology (with base year 2022-23), the government has made a whole host of methodological changes and incorporated newer data sources. The new GDP estimates released in February-end provide a more accurate picture of the economy. However, this update also found that the outgoing series was overestimating India’s GDP by around three to four per cent — in 2025-26, India’s GDP was reassessed from being Rs 357 trillion to Rs 345 trillion. The second reason is the exchange rate. Since the IMF compares economies in US dollar terms, the exchange rate of any domestic currency vis-à-vis the US dollar becomes a crucial factor. Over the past year, the Indian rupee has weakened by almost 10 per cent against the US dollar — first due to the imposition of US tariffs, and later, to the uncertainty around a trade deal. What made this weakness even worse is the fact that it has happened during a period when the US dollar itself has actually weakened against most other major currencies. The net effect has been that when calculated in dollar terms, India’s GDP, already pegged down in rupee terms, falls behind that of Japan and the UK.

Notwithstanding the slide, the IMF projects that India will overtake the UK and Japan in 2027 and then become the third-largest economy by overtaking Germany in 2031. That should not, however, draw away from the need to push forward aggressively on the domestic reform agenda, especially in the more politically contentious areas such as electricity and fertilisers. Considering the series of shocks that the Indian and the global economy have recently been subjected to — from the Covid pandemic to the wars in Ukraine and Iran — it would be prudent for policymakers to factor such risks into their strategies.