By Suresh Unnithan
India has achieved a significant milestone: as of early 2026, it stands as the world’s fourth-largest economy by nominal GDP, with an estimated value of approximately $4.18 trillion in 2025, surpassing Japan according to recent government reviews and aligned IMF projections. This ascent positions India behind only the United States, China, and Germany in nominal terms, while in purchasing power parity (PPP)—which accounts for differences in living costs—India already ranks third globally, with GDP exceeding $14 trillion.
Yet this headline success tells only part of the story. India’s per capita income remains modest, lagging behind even some neighbouring countries like Bangladesh in nominal terms in recent years, though projections show India pulling ahead again. The contrast highlights a profound duality: extraordinary aggregate growth driven by a vast population and dynamic sectors, juxtaposed against persistent challenges in distributing prosperity widely. This article explores India’s economic rise, its underlying drivers, the reasons for low per capita figures, deepening inequalities, and the path toward more inclusive progress.
The Rise to Fourth-Largest Economy
India’s transformation from a largely agrarian, post-colonial economy to a global powerhouse has been remarkable. Liberalization reforms starting in the 1990s opened markets, spurred private enterprise, and integrated India into the global economy. Subsequent initiatives—such as digital infrastructure expansions (Aadhaar for identity, UPI for instant payments), “Make in India” to attract manufacturing, and sustained policy efforts—have fuelled momentum.
Recent data underscores this strength. Real GDP growth reached 8.2% year-over-year in the second quarter of fiscal year 2025-26 (July-September 2025), the fastest in six quarters. The services sector, contributing about 55% of GDP, expanded at 9.3%, while manufacturing and construction grew by 7.6%. Over the longer term, India’s average annual real GDP growth has remained robust at 6-7%, outpacing most major economies and steadily increasing its share of global output.
The milestone of overtaking Japan reflects these trends. India’s nominal GDP hit around $4.18 trillion in 2025, marginally ahead of Japan’s, per IMF-aligned estimates and India’s official year-end review titled “2025: A Defining Year for India’s Growth”. Projections suggest continued ascent, potentially overtaking Germany to claim third place in nominal terms within the next few years, with GDP possibly reaching $7.3 trillion by 2030.
The Per Capita Paradox
Despite this aggregate scale, India’s per capita income reveals a different reality. Nominal GDP per capita stood at approximately $2,878 in 2025, according to IMF World Economic Outlook projections (April 2025 update). This places India around 142nd globally among roughly 193 countries—far below many developing nations, including neighbors such as Bangladesh (which has hovered slightly higher in recent nominal estimates, though India leads in PPP terms and is projected to widen the gap).
For 2026, nominal per capita is expected to rise modestly to around $2,900–$2,950, maintaining a ranking in the 140th–145th range. In contrast, PPP-adjusted per capita for 2026 is estimated at around $12,964, reflecting a stronger position when local costs are considered—India significantly outperforms in PPP rankings due to lower living expenses.
The primary reason for this disparity is India’s massive population of over 1.4 billion. Total economic output, while enormous, spreads thinly across citizens. Rapid population growth has historically diluted per capita gains, even as the economy expands quickly. High-value sectors like IT, financial services, and infrastructure drive headline GDP but employ relatively fewer people, often skilled urban workers.
Drivers of Growth and Uneven Distribution
Growth has concentrated in urban, high-skill areas. The services and manufacturing booms benefit corporations and professionals, while agriculture—still employing about 45% of the workforce—contribute only 15-18% to GDP and grows at a modest 2-3% annually. Rural incomes often remain low, around $1,500 per year or less. The informal sector, accounting for roughly 90% of employment, offers limited wage growth or security.
Wealth and income inequality exacerbate the divide. The top 1% of Indians hold around 40% of national wealth, while the top 10% control 57-60% of income (and about 65% of wealth, per recent World Inequality Database and 2026 World Inequality Report insights). Billionaire wealth in sectors like energy, telecom, and conglomerates has surged amid liberalization. Meanwhile, the bottom 50%—over 700 million people—share a tiny fraction.
Official Gini coefficients (around 25-30 based on consumption) suggest moderate inequality, but wealth- and income-based measures indicate much higher levels (often 60+), placing India among the more unequal large economies. Regional disparities compound this: urban tech and finance hubs enjoy per capita incomes several times the national average, while rural areas lag. Multidimensional poverty persists in health, education, and amenities, with gender gaps and a Human Development Index ranking around 134th underscoring uneven progress.
Policy Responses and Structural Challenges
Government initiatives have provided support and lifted millions out of poverty. Financial inclusion, health insurance, direct benefit transfers, and rural employment guarantees have expanded access. Recent quarters show contained inflation, narrowing current account deficits, and upgraded forecasts (e.g., RBI at 7.3% for FY 2025-26). Strong domestic demand, benign inflation, and reforms create a “Goldilocks” phase of high growth and low inflation.
Yet structural issues remain: tax policies favoring capital and corporates, limited progressive redistribution, and slow labor formalization allow gains to concentrate at the top. Bridging these requires deeper reforms in education, skill development, taxation, land access, and job quality to ensure broader participation.
Looking Ahead
India’s trajectory mirrors other emerging markets but stands out for its scale and speed. Aggregate size positions it as a rising global player, yet individual prosperity lags far behind. True advancement hinges on translating macroeconomic gains into inclusive growth that improves lives beyond statistics.
In essence, India’s economic narrative is one of remarkable duality: a fourth-largest economy (with third-place PPP ambitions) poised for further ascent, yet per capita realities and concentrated wealth that reflect deep divides. Addressing these through sustained, equitable reforms will determine whether future growth becomes truly transformative for the average citizen.
