Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
The recently released World Economic Outlook 2026 by the International Monetary Fund places India as the world’s sixth largest economy in 2025 and 2026 in US dollar terms, falling from the fifth largest ranking in 2024. The economy is expected to surpass the $4 trillion mark in 2026 with the $4.15 trillion worth of the UK economy surpassing it. India’s economy is now set to become the fifth largest economy by 2027 at $4.57 trillion and may cross the $5 trillion mark, becoming the fourth largest economy ahead of Japan and the UK. By 2031, the IMF estimates that India will become the world’s third largest economy with a nominal GDP size in US dollar terms of $6.79 trillion.
Why did the IMF change the ranking?
India remains the fastest growing major economy in the world with an estimated growth of 7.6% in FY26 and is expected to expand to 6.9% in FY27, according to the RBI, and to 6.5%, according to the IMF. But the combination of two factors – the rapid depreciation of the currency and the new base year – changed the size of the nominal GDP, affecting its global ranking.
According to the latest IMF data, the rupee has depreciated to 88.48 against the US dollar last year from about 84.6 in 2024. It is likely to weaken further to 92.59 this year, it is projected. Meanwhile, the British pound appreciated against the US dollar, helping to boost the size of the UK economy. Significantly, the IMF in October 2025 has already flagged that slower-than-expected nominal growth and a larger-than-planned depreciation of the rupee will delay India’s goals of becoming a $5 trillion economy a year. The IMF’s 2025 estimates predict India’s GDP at $4.96 trillion in FY28 with the depreciation of the rupee leading to slower-than-estimated growth.
How does changing the base year affect the size of the economy?
The new GDP series with the base year of 2022-23 nominal GDP or GDP at current prices is estimated at Rs 345.47 trillion in FY26 from Rs 318.07 trillion in FY27. Compared to the old series, the size of the economy in nominal terms in the new series has decreased. In FY25, nominal GDP in the new series was 3.8% lower than in the old series. In FY24, it was Rs 289.83 trillion in the new series, 3.8% lower than Rs 301.2 trillion in the old series and in FY25, the nominal GDP in the new series at Rs 261.17 trillion was 2.9% lower than the old series.
Chief Economic Adviser V Anantha Nageswaran noted during the release of the new series that the economy will cross the $4-trillion GDP mark in FY27 based on current projections. While India is on course to become the world’s top three or four economies, the timeline and ranking will depend on the exchange rate as well as the growth rates of other countries, he said at the time.
Falling global rankings for India’s economy a matter of concern?
Not at all, say economists, who say the fall in the size of the nominal economy in US dollar terms should not be seen as a matter of concern as India’s economic fundamentals are strong. However, they stressed that the depreciation of the Indian currency is very severe and may pose challenges in the long run. The Reserve Bank of India Governor Sanjay Malhotra also noted that the Indian rupee in 2025-26 depreciated more than the average of previous years. Taking into account the volatility of the US dollar and fluctuations in global capital flows, the baseline assumption for the exchange rate has been revised to Rs 94 per US dollar compared to Rs 88 in the October 2025 MPR, said the Monetary Policy Report 2026.
The rupee has depreciated over the past year as the US implemented reciprocal tariffs and then the war in West Asia created a new geopolitical conflict that dampened investor sentiment.
Will the ranking change again?
Yes, the rankings may change again based on how other economies perform and more importantly, the rupee and US dollar exchange rate. The IMF usually uses the average annual market exchange rate for this purpose. If the depreciation of the rupee continues at a rapid pace, then the nominal GDP in US dollar terms will decline further. Furthermore, if the currencies of other economies such as the UK appreciate more against the US dollar, this will also make the UK economy stronger.
