The Reserve Bank of India (RBI) has asserted that a persistent emphasis on strengthening core economic foundations and advancing reforms is crucial for India to sustain its high growth trajectory in a volatile global landscape. This assessment was detailed in the central bank's 'State of the Economy' article, published in its December bulletin on Monday, December 23, 2025.
Robust Domestic Activity Amid Global Headwinds
The article pointed out that the Indian economy expanded at a brisk pace of 8.2 percent in the second quarter of the fiscal year 2025-26 (Q2 FY26), marking the fastest growth rate in six quarters. This momentum, according to the RBI, was primarily fueled by domestic drivers, with private consumption demand playing a pivotal role.
High-frequency indicators suggest that economic activity remained resilient even in the post-festival month of November. While Goods and Services Tax (GST) collections were subdued, partly due to rate rationalisation, other indicators like e-way bills, petroleum consumption, and digital payments showed a noticeable pick-up in growth.
Urban demand indicators strengthened further, building on the festive season boost. Retail passenger vehicle sales recorded their highest growth in over a year, supported by GST benefits, marriage season demand, and improved supply conditions. The data for November also pointed towards robust industrial activity.
Navigating a Shifting Global Trade Environment
The RBI article underscored that the year 2025 witnessed a significant transformation in global trade policies, characterised by a shift towards bilateral renegotiations on tariffs and trade terms. These developments have created ripple effects across global supply chains and trade flows, contributing to heightened uncertainty and concerns over worldwide growth prospects.
While India is not completely insulated from these external challenges, the article noted that coordinated fiscal, monetary, and regulatory policies have helped build considerable economic resilience over the years.
On the external front, India's merchandise trade deficit narrowed in November, driven by a surge in exports and a contraction in imports. The decline in imports was largely attributed to reduced demand for gold after the festive season.
Mexico Tariff Hike: A Potential Challenge
The bulletin specifically highlighted a new trade challenge emerging from Mexico. Earlier in December, Mexico announced higher import duties—ranging from 5 to 50 percent—on about 1,400 products imported from countries with which it lacks a free trade agreement.
Since India does not have a trade pact with Mexico, tariffs on key Indian exports are set to rise significantly from January 1, 2026. This will impact three major engineering goods sub-segments: two and three-wheelers, motor vehicles/cars, and auto components and parts, where tariffs could jump from 20 percent to 50 percent. Mexico is a major export destination for these Indian products.
The Path Forward: Efficiency and Productivity Gains
In conclusion, the RBI's article stressed that the key to maintaining high growth lies in unlocking efficiencies and productivity gains. It reiterated that a continued focus on macroeconomic fundamentals and structural economic reforms is essential to firmly keep the economy on its high-growth path amidst a rapidly evolving global environment. This strategic focus, the central bank argues, will enable India to navigate external shocks while capitalising on its domestic strengths.
