India slips to 6th largest economy in 2025; IMF flags currency pressures, external risks

India’s ambition to become the world’s third-largest economy by 2028 faces near-term headwinds amid a weakening rupee and a strong U.S. dollar, according to the latest data from the International Monetary Fund (IMF). 

The country slipped to the sixth position globally in 2025, even as it retained its status as the fastest-growing major economy. 

The IMF’s latest World Economic Outlook (WEO) and Global Financial Stability Report (GFSR) present a nuanced picture: India’s growth momentum remains resilient, but vulnerabilities linked to oil prices, currency pressures and volatile capital flows are rising in a geopolitically uncertain environment. 

The IMF projects India’s GDP growth at 6.5% in both 2026 and 2027, outpacing all major economies, with inflation expected to ease and stabilise. However, it also flagged concerns over a widening current account deficit and increasing external risks stemming from the raging West Asia crisis. 

IMF estimates

According to IMF estimates, India’s economy is expected to reach $3.92 trillion in 2025, placing it behind the UK at $4 trillion while Japan holds the fourth spot at $4.44 trillion. 

The U.S continues to lead with a GDP of $30.8 trillion, followed by China at $19.6 trillion and Germany at $4.7 trillion. 

India had ranked fifth in 2024 with an economy of $3.5 trillion, ahead of the UK at $3.4 trillion. The fall in ranking is mainly attributed to currency depreciation, as global economic comparisons are measured in U.S. dollar terms. 

Strong dollar, rate hikes weigh on rupee

The Indian rupee has remained under pressure over the past year, weighed down by a strong U.S. dollar, elevated U.S. interest rates, and persistent global macroeconomic uncertainties. Safe-haven demand has further weakened emerging market currencies, including the rupee. 

Despite the setback, India is projected to regain the fourth position by 2027, overtaking the UK. Its GDP is expected to rise to $4.58 trillion, compared to the UK’s projected $4.47 trillion. 

However, under the IMF’s revised trajectory, India is likely to reach the third position only by 2031, when its economy is projected to expand to $6.79 trillion, surpassing Japan’s estimated $5.13 trillion. 

While India continues to post strong real economic growth, the steady depreciation of the rupee against the U.S .dollar has partially eroded gains in nominal GDP, delaying its climb up the global economic rankings.