Indian Economy in 2025: A Year of Resilience Amid Global Headwinds
By our team of in-house writers.
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First publised on 2025-12-20 06:38:10
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By our team of in-house writers.
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As 2025 draws to a close, India's economy has demonstrated remarkable resilience, navigating global uncertainties while maintaining its position as one of the world's fastest-growing major economies. From ascending to become the world's fourth-largest economy to signing landmark trade agreements, the year has been marked by significant milestones that will shape the nation's economic trajectory for years to come.
Economy Scales New Heights
India's economic journey this year has been nothing short of impressive. In June 2025, India surpassed Japan to become the fourth-largest economy in the world with a nominal GDP of $3.78 trillion. The country is now projected to reach $5 trillion by 2027 and is on course to surpass Germany by 2028.
The economy demonstrated strong momentum despite initial headwinds. GDP grew 7.8% year-over-year in the April-June quarter of fiscal 2025-26, a sharp improvement from the previous year, driven by robust private consumption and government spending. For the full fiscal year 2025, the economy expanded by 6.5%, with a remarkable 7.4% growth in Q4 helping offset a slower first half.
The International Monetary Fund has projected India's growth at 6.6% for 2025-26, with the country continuing to outpace China's projected 4.8% growth rate. This upward revision came despite increased US tariffs on Indian exports, underscoring the strength of domestic demand and resilient growth fundamentals.
Monetary Policy: The Great Pivot
Perhaps the most significant policy development of 2025 was the Reserve Bank of India's aggressive monetary easing cycle. The RBI reduced the repo rate by a cumulative 125 basis points through the year, bringing it down from 6.5% to 5.25% in a series of cuts that began in February.
The easing was enabled by a dramatic decline in inflation. Headline inflation eased to 3.2% in April 2025, within the central bank's target range of 4% +/- 2%, largely due to substantial moderation in food inflation. By October, consumer price inflation had plunged to an all-time low of 0.25%, providing the RBI with significant room to support growth.
In June, the RBI delivered a surprising 50 basis point cut and announced a 100 basis point reduction in the Cash Reserve Requirement to 3%, estimated to inject around Rs 2.5 trillion in liquidity into the banking system. The central bank's shift from an accommodative to neutral stance signaled a more balanced approach going forward.
Governor Sanjay Malhotra emphasized that the rate cuts were aimed at supporting growth while maintaining price stability, with the monetary policy providing relief to borrowers through reduced EMIs and encouraging consumption and investment across sectors.
The Labour Reform Blindspot:
This is where the 2025 economic story becomes uncomfortable
Despite repeated assurances, the four Labour Codes - meant to simplify compliance, enhance worker protection, and encourage formal employment - remain largely unimplemented. Political caution, state-level inertia, and union resistance have stalled what was once projected as a transformative reform.
The consequence is visible: manufacturing growth without manufacturing jobs, a swelling gig economy without adequate social security, and continued informality for a majority of India's workforce. Employment schemes and platform tie-ups, while helpful, cannot substitute for deep labour market reform.
India's demographic advantage will not automatically convert into a dividend unless labour flexibility is paired with worker security.
Trade Diplomacy Breakthrough
The year's crowning achievement in trade policy came with the signing of the India-UK Comprehensive Economic and Trade Agreement (CETA) in July. The agreement was signed by Commerce and Industry Minister Piyush Goyal and UK Secretary of State for Business and Trade Jonathan Reynolds in the presence of both prime ministers, following negotiations that concluded in May after over three years of talks.
CETA provides unprecedented duty-free access to 99% of India's exports to the UK, covering nearly 100% of trade value, including labor-intensive sectors such as textiles, leather, marine products, gems and jewelry. The deal is expected to double bilateral trade from $60 billion in 2024 to $100 billion by 2030, with projections of an additional UK Pounds 25.5 billion in annual trade by 2040.
The agreement goes beyond tariffs, enhancing mobility for professionals including contractual service suppliers, business visitors, and independent professionals. For India, this addresses a key demand for greater global mobility for its skilled workforce, particularly in IT and professional services.
M&A Market Shows Strength
India's mergers and acquisitions landscape remained robust despite global uncertainties. In H1 2025, India's M&A market remained resilient, recording $50 billion in deal value despite a 12% year-over-year drop in volumes, with investors favoring fewer, larger deals with 10 transactions exceeding $1 billion.
The power sector led M&A activity with $8.5 billion, driven largely by renewable energy growth. Notable transactions included Wilmar International's $1.4 billion acquisition of Adani Wilmar's staples division and Bajaj Group's $2.7 billion acquisition of a 26% stake in Bajaj Allianz General and Life Insurance.
The financial sector witnessed particularly strong activity. Between January and September 2025, mergers and acquisitions worth $8 billion concluded across the financial sector, a 127% increase over the same period last year. Major deals included Emirates NBD's $3 billion acquisition of a 60% stake in RBL Bank and Sumitomo Mitsui Banking Corporation's $1.6 billion investment in Yes Bank.
Domestic deals accounted for 86% of volumes, with private equity firms maintaining strong dry powder levels and showing renewed appetite for big-ticket investments. The first quarter alone saw 636 deals amounting to $24.4 billion, a 34% rise in value compared to the previous quarter.
IPO Frenzy Continues
The primary market maintained its torrid pace in 2025, with record fundraising activity. India's IPO market saw 96 IPOs (including SMEs) in 2025 collectively raising Rs 1.6 lakh crore, with over 40 listings in the past three months alone. Four major IPOs in December alone were expected to raise around Rs 40,000 crore, potentially pushing total 2025 fundraising close to Rs 2 lakh crore.
High-profile launches dominated market attention. E-commerce platform Meesho's Rs 5,421 crore IPO and expectations around Zepto, Flipkart, and other unicorns kept investor interest elevated throughout the year. The strong pipeline demonstrated both market depth and sustained appetite for new listings across multiple sectors including finance, consumer technology, healthcare, and manufacturing.
Private equity and venture capital exits were facilitated by attractive IPO valuations, with many PE/VC-backed companies choosing the public markets route. The SME segment also remained active, providing opportunities across smaller enterprises seeking capital for expansion.
Agricultural Push and Employment Initiatives
The government maintained its focus on agriculture and employment generation. In August 2025, Prime Minister Narendra Modi launched two major agriculture schemes worth Rs 35,440 crore - the PM Dhan-Dhaanya Krishi Yojana and the Mission for Aatmanirbharta in Pulses aimed at boosting self-reliance, productivity, and farmers' income.
On the employment front, the Ministry of Labour & Employment signed an MoU with Zomato on October 14, 2025, under which Zomato will list around 2.5 lakh job opportunities annually through the National Career Service portal, supporting the growth of the gig economy and promoting formal, technology-enabled livelihoods.
The labor market remained resilient with the labor force participation rate increasing and employment continuing to rise. Survey data from early 2025 showed optimism especially in sectors such as information technology, retail, and finance.
Energy Transition Accelerates
India achieved a significant clean energy milestone by generating 50% of its power from renewable sources, reaching this target five years ahead of its 2030 goal. The government's commitment to achieving Net Zero Emissions by 2070 through its 'Panchamrit' strategy gained further momentum with increased investments in renewable energy infrastructure.
The focus on green steel also intensified, with projections indicating India's green steel demand could surge to 179 million tons by 2050, driving investments in sustainable manufacturing technologies.
Structural Reforms Continue
The year saw important regulatory reforms in merger control. The Competition Commission of India enacted new Combination Regulations and Revised Exemption Rules, introducing a Deal Value Threshold requiring CCI clearance for transactions above Rs 20 billion if the target has significant business operations in India. These reforms aim to foster a more equitable market environment while balancing business interests with competition concerns.
The Production-Linked Incentive (PLI) scheme continued to attract investments across sectors, supporting the government's Atmanirbhar Bharat vision. Steady foreign direct investment inflows, though moderating from earlier peaks, continued to support capacity expansion across manufacturing sectors.
Market Performance and Challenges
Capital markets showed resilience after initial volatility. Despite capital outflows for much of FY 2024-25, India's equity markets saw a sharp rebound from April 2025, with indexed MSCI data showing India's returns doubling in value since 2019, outperforming most emerging market peers.
However, challenges persisted. Manufacturing activity showed signs of moderation, with industrial production growth slowing in some months. Export performance remained uneven, with concerns about US tariff policies and global trade uncertainties weighing on sentiment. India's exports to the US, one of its largest trading partners, faced headwinds from policy changes in Washington.
The rupee came under pressure in late 2025, breaching the 90-per-dollar mark before paring losses, reflecting both global dollar strength and domestic factors. Nevertheless, India's foreign exchange reserves stood at a comfortable $686.2 billion as of late November, providing more than 11 months of import cover.
Economic Culture Takes Root
An interesting development was the emergence of India's concert economy. Over 5.6 lakh Indians traveled across cities for concerts in 2025, with around 34,000 shows conducted countrywide. Major events like Coldplay's tour in Ahmedabad generated an estimated â¹641 crore in economic impact, with Rs 392 crore flowing directly into the local economy through expenditure on hotels, food, transportation, and shopping.
This demonstrated India's evolving consumer landscape, with rising disposable incomes supporting not just traditional consumption but also experiential spending on entertainment and leisure.
Looking Ahead
As India enters 2026, the economic outlook remains cautiously optimistic. Deloitte projects growth between 6.4% and 6.9% for FY 2025-26, supported by tax exemptions, GST reforms, accommodative monetary policy, and potential trade deals. The consumption outlook remains strong, with consumption accounting for over 61% of GDP, driven by easing inflation, lower interest rates, and a rising urban middle-income class.
However, risks persist. Global trade uncertainties, particularly around US tariff policies and geopolitical tensions, could disrupt India's growth trajectory. The success of ongoing trade negotiations with the Gulf countries, Australia, Japan, and Southeast Asian nations will be crucial for diversifying trade partnerships and reducing dependence on traditional markets.
The government faces the twin challenge of maintaining fiscal discipline while supporting growth through infrastructure spending and welfare measures. With general elections behind it and a stable political mandate, the Modi government is well-positioned to pursue structural reforms, though implementation will be key.
India's emergence as a renewable energy hub, its young and digitally skilled workforce, and its growing position in global capability centers provide strong foundations for sustained growth. The question is whether policy execution can match ambition, and whether the global environment will remain conducive to India's aspirations.
As Commerce Minister Piyush Goyal noted when signing the UK trade deal, these agreements serve as catalysts for inclusive growth, benefiting farmers, artisans, workers, MSMEs, startups, and innovators while accelerating India's journey toward becoming a global economic powerhouse. Whether 2025 will be remembered as the year India truly arrived on the global economic stage remains to be seen, but the foundations have certainly been strengthened.
