As 2025 drew to a close, India's economic narrative defied simple categorization. It was a year of powerful domestic momentum clashing with turbulent global crosscurrents. The nation cemented its status as a global growth engine, yet simultaneously felt the squeeze of rising protectionism and capital flight. The story of India in 2025 is one of remarkable resilience tested by external shocks.
A Domestic Powerhouse: Stellar Growth and Stable Prices
The most compelling chapter of India's 2025 story was written by its robust domestic performance. The economy expanded at a blistering pace, with real GDP growth hitting 8.2% in the July-September quarter (Q2 FY26). This marked a sharp acceleration from the 5.6% growth seen in the same period a year earlier. Combined with a strong 7.8% expansion in the first quarter, the first half of the financial year saw growth hovering around 8%.
This performance solidified India's position as the world's fastest-growing major economy. Chief Economic Adviser V Anantha Nageswaran expressed confidence, stating that full-year growth would comfortably be "7% or north of 7%". Prime Minister Narendra Modi hailed the figures as validation of the government's reform-oriented policies.
Equally significant was the control over inflation. In a historic moment, retail inflation plummeted to a mere 0.25% in October 2025, the lowest in the current CPI series. Although it edged up slightly to 0.71% in November, it remained well below the Reserve Bank of India's 4% target. The RBI itself described this combination of strong growth and low inflation as a "rare goldilocks" phase for the macroeconomy.
This benign inflation environment gave the central bank room to act. The RBI cut the repo rate by a cumulative 125 basis points during 2025, bringing it down to 5.25% in an aggressive easing cycle aimed at supporting growth.
Structural Reforms and Policy Support
Policy measures during the year provided a significant tailwind. The launch of GST 2.0 in September 2025 simplified the indirect tax structure into two primary slabs of 5% and 18%, down from four. This reform lowered costs for a wide range of goods, from household items to farm equipment, boosting consumer demand and manufacturing.
Furthermore, the Union Budget delivered substantial income tax relief, notably making income up to Rs 12 lakh annually tax-free under the new regime. For salaried individuals, this effective threshold rose to Rs 12.75 lakh with the standard deduction. These measures significantly enhanced disposable income for the middle class.
The Global Squeeze: Tariffs, Outflows, and a Weakening Rupee
Despite the strong domestic foundation, 2025 exposed India's vulnerabilities to global forces. The year was marked by escalating trade tensions, particularly with the United States. In a significant move, the US imposed tariffs of 25% on Indian goods in August, later doubling them to 50%. The Trump administration cited high Indian tariffs and the country's energy ties with Russia as reasons.
Trade negotiations also became entangled with US immigration policy, with a sharp hike in H-1B visa fees to $100,000 and enhanced screening, impacting India's crucial services exports.
An unexpected shock came from Mexico, which announced tariff hikes of up to 50% on imports from non-FTA countries like India, effective January 2026, threatening a significant portion of India's $5.75 billion exports to that market.
These pressures manifested in the financial markets. The Indian rupee came under severe stress, hitting a record low near Rs 91 per US dollar in mid-December. It emerged as one of the worst-performing emerging market currencies in 2025. Simultaneously, Foreign Institutional Investors (FIIs) staged a massive exodus. Net FII equity outflows for 2025 reached a record Rs 1,58,407 crore, the highest annual selling since they began investing in India.
Consequently, while Indian stock markets touched all-time highs—with the Nifty 50 reaching 26,326 and the Sensex hitting 86,159.02 in December—they ended the year on a softer note due to sustained foreign selling.
Trade Diplomacy: Forging New Pathways
In response to rising global protectionism, India aggressively pursued new trade agreements to diversify its export markets. The year saw key milestones:
- India-New Zealand FTA (concluded December 22, 2025): Provides duty-free access for all Indian exports to New Zealand and aims to double bilateral trade in five years.
- India-Oman CEPA: Grants near-complete duty-free access for Indian exports across sectors like textiles, engineering, and pharmaceuticals.
- Revival of India-Israel FTA talks: Negotiations were formally revived in November 2025 after a long stall.
These deals are seen as crucial for India's export-led growth strategy amid a fragmenting global trade landscape.
An Uneasy Balance and the Road Ahead
The year 2025 was neither a perfect "Goldilocks" period nor one derailed by external pressures. It showcased an economy with formidable domestic strength, driven by reforms, policy support, and demographic energy, capable of weathering significant global storms.
However, the scars were visible: a weakened currency, record foreign investor outflows, and the tangible impact of tariff wars. The growing trade imbalance with Russia, where imports (largely oil) massively outstrip exports, also presents a long-term challenge.
As India steps into 2026, it carries the momentum of 8% growth but also the unresolved burden of global uncertainty. The nation's economic fortunes will continue to be shaped by its ability to navigate the twin imperatives of strengthening domestic foundations while deftly managing an increasingly volatile and protectionist world order.
