Datanomics: Rupee drag may delay India overtaking Japan's economy

India posted strong 8.2% real GDP growth in Q2 FY26, but rupee depreciation trimmed its dollar GDP, keeping Japan narrowly ahead in the April-September comparison

India’s real gross domestic product (GDP) growth jumped to a six-quarter high of 8.2 per cent in the second quarter of 2025-26 (Q2FY26). Nominal GDP growth eased to 8.7 per cent from 8.8 per cent in Q1, signalling that lower inflation is lifting numbers. India is expected to overtake Japan as the fourth-largest economy in 2025; however, at least during April-September, India could not do so because of exchange-rate movements.

 

India still fastest-growing major economy

 

India’s real GDP growth increased to 8.2 per cent in Q2 from 7.8 per cent in Q1, staying well ahead of China’s slowing economy, and contrasting with Japan’s contraction. Data from the United States (US) for this quarter is still pending. 

 

Close to Japan, but still behind

 

Based on data from April-September, India’s economy stands at $1.99 trillion, just behind Japan’s $2.13 trillion economy. The gap is narrow, but India has still not overtaken Japan in dollar terms.  

 

Currency shifts helping Japan, holding India back

 

Exchange-rate movements have shaped dollar rankings. Germany and Japan saw their currencies appreciate, and the Indian rupee depreciated. This lifted Japan’s nominal dollar GDP growth and pulled India’s down, helping Japan retain its lead despite India’s stronger growth.