India’s economy expanded at a strong 7.8% in the October-to-December quarter of 2025, surpassing market expectations and reaffirming its position as the world’s fastest-growing major economy, according to data released by the statistics ministry.

Consumer Spending and Economic Reforms Drive Growth

The 7.8% growth rate for the fourth quarter of 2025 outpaced the 7.6% forecast by analysts, although it was slightly lower than the previous quarter’s 8.4% expansion. This growth was attributed to strong consumer spending and a new method of calculating economic output, which officials said provides a more accurate reflection of the economy’s performance.

Aditi Nayar, an economist at ratings agency ICRA, noted that the GDP growth was “healthier than expected,” adding that the slowdown was primarily due to weaker performance in the agriculture and non-manufacturing industrial sectors.

Despite the moderation, the results provide a boost to policymakers who have faced challenges including steep US tariffs, a depreciating rupee, and subdued consumer demand for much of 2025.

Economic Size and Global Standing

India’s nominal GDP in dollar terms remained below $4 trillion in 2025, compared to Japan’s $4.4 trillion. However, India’s chief economic advisor, V. Anantha Nageswaran, stated that the country is expected to cross the $4 trillion mark comfortably by 2026-27, assuming current growth trends continue.

“The relative ranking will also depend on other countries’ growth rates and exchange rates,” Nageswaran said, highlighting the dynamic nature of global economic standings.

Last year, the Indian government claimed that India had overtaken Japan to become the world’s fourth-largest economy, though the latest data indicates that the crossover has not yet occurred.

Policy Measures and Trade Agreements

Prime Minister Narendra Modi’s government has taken steps to bolster the economy, including cutting income and consumption taxes, which have contributed to a rebound in consumer spending. These measures have helped stabilize the economy amid a challenging global environment.

India also secured a trade deal with the United States in early February 2025, which initially boosted the rupee. However, the US Supreme Court later struck down former President Donald Trump’s sweeping tariffs, which had raised concerns about the impact on trade relations.

The new GDP data represents the first release under a revised framework that New Delhi claims better reflects the realities of a rapidly changing economy. The base year for GDP calculations has been updated from 2011-12 to 2022-23, and more detailed price deflation methods have been adopted to address concerns that previous methods relied too heavily on the wholesale price index.

Growth calculations are now based on more diverse data sources, including online tax and vehicle registration databases. The government stated that this overhaul aligns official numbers more closely with the structure and dynamics of the current economy.

The statistics ministry has raised its growth projections for the current financial year, which ends in March 2026, to 7.6% from the previous forecast of 7.4%. This upward revision reflects the improved data and the government’s confidence in economic performance.

Modi’s long-term goal of transforming India into a developed nation by 2047 remains ambitious. Most analysts believe that achieving this goal will require annual economic growth of about 8% until 2047.