India may become the fourth economy in the world. What you need to know

India's GDP has reached the level of $4.18 trillion and may overtake Japan by the end of 2026. Even the US import duties on Indian goods, which were set at 50%, could not prevent this. It is expected that in two or three years, India will displace Germany and take the third place among the largest economies in the world. How New Delhi managed to achieve such a result is in the Izvestia article.

The rate on domestic consumption

• The introduction of export duties by the United States forced India to focus on domestic consumption, as the country has the second largest population in the world. This strategy has given the maximum boost to economic growth, even though more than half of India's population is employed in the low-profit agricultural sector.

• In August 2025, the country launched a value-added tax reform to revive demand and overcome the slowdown in economic growth. Prior to that, India had a complex and confusing tax system with four rates of 5%, 12%, 18% and 28%, and the tax on the same product could vary significantly depending on its application. The problem was dubbed the "popcorn tax" because the product could be taxed at three different rates depending on packaging and taste.

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• The reform of the goods and services tax makes the tax system more transparent and reduces the number of rates to two — 5% and 18%, and essential goods are taxed at a minimum rate from 0 to 5%. At the same time, the country maintains a maximum rate of 40% for luxury goods. The tax reform package is designed to support the middle class, increase the urban population and reduce unemployment. In India, budget income from income tax is only 15%, and the main payer is the middle class, since low-income citizens are exempt from tax.

• During the year, the maximum increase was recorded in the service sector, which accounts for 55% of the country's GDP. The annual growth was 7.2%, higher than in the extractive (4.4%) and manufacturing (6.1%) sectors of the economy.

Investment

• Government investment in construction has become another driver of India's economy. Thanks to government programs, the contribution of construction to GDP reached a historic maximum of 4.6 trillion rupees, and also ensured a reduction in unemployment.

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• Changes in legislation have helped attract funds from foreign investors to the country. India allowed foreigners to own an insurance business in the country and opened the nuclear energy sector to private investment: the first project was the multinational conglomerate Adani Group, which raised 10 billion rupees (approximately $111 million) through the issue of public bonds in July 2025. The new bond issue was announced on January 2.

Reorientation of exports

• The share of exports in the Indian economy has declined, primarily due to a reduction in shipments to the United States. But the country has established international relations and secured reliable sales markets thanks to free trade agreements. India enters into them only with those countries whose GDP exceeds $20,000 per capita: Australia, Great Britain, New Zealand and the Gulf countries.

• Exports from India to Australia increased by 8% in fiscal year 2025 (the period from April 1, 2024 to March 31, 2025). And from January 1, Australia will reset all duties for Indian imports. New Zealand will also provide duty-free access for Indian goods to the country and invest $20 billion in the Indian economy over 15 years. Trade agreements with Israel and Canada are being prepared.

• India is developing cooperation with Russia, despite secondary sanctions from the United States and Europe. New Delhi and Moscow expect to increase trade turnover to $100 billion by 2030, and Sberbank was included in the list of banking organizations that are allowed to import gold into the country, which will create a parallel financial infrastructure for cooperation between the countries bypassing sanctions. In November, Russian oil imports to India reached 36.3% of the total volume of mineral fuel purchases, but now the country is reducing purchases in order to conclude a deal with the United States. According to Kpler, in 2025, the United States imported only 6.6% of all crude oil imports to India.