Editorial 1 : Economic resilience and growth
Context
India’s economy in 2025 displayed resilience amid global uncertainty, marked by strong growth, low inflation, and effective fiscal and monetary policy interventions despite external shocks such as high US tariffs and volatile capital flows.
Introduction
Macroeconomic stability depends on sustained growth, price stability, and sound policy responses to global and domestic challenges. In 2025, the Indian economy entered a “Goldilocks phase”, combining high growth with unexpectedly low inflation and limited fallout from global trade disruptions. This performance highlights the importance of strong fundamentals and proactive policy management.
Strong Growth with Positive Surprises
- India recorded robust GDP growth of 7.4% and 8.2% in the first two quarters of the current fiscal year, exceeding expectations.
- Growth forecasts were revised upward by institutions such as CRISIL and the IMF.
- Domestic demand, public investment, and favourable external conditions supported economic momentum.
Benign Inflation and Policy Space
- Retail inflation declined sharply to 0.3% in October 2025, the lowest since FY 2012.
- Excluding gold, headline inflation entered negative territory.
- Low inflation created space for accommodative monetary policy by the Reserve Bank of India (RBI).
Limited Impact of Global Trade Shocks
- Despite elevated US tariffs and global uncertainty, the impact on global and Indian growth was muted.
- The IMF revised global growth upward to 3.2%, while the WTO increased global trade growth estimates.
- The global AI investment boom boosted exports of high-tech goods and services, benefiting several economies.
Capital Flow Volatility and External Stress
- India experienced volatile capital inflows, rupee depreciation, and negative foreign institutional investment in equities.
- However, unlike the 2013 taper tantrum, India’s macro fundamentals remained strong, with a low current account deficit and controlled fiscal indicators.
- The stress was concentrated on the capital account rather than structural weaknesses.
Role of Fiscal Policy in Supporting Growth
- Government capital expenditure was front-loaded to stimulate economic activity.
- GST rate rationalisation and income tax reductions supported consumption.
- Direct Benefit Transfers, especially to women, boosted household demand and social welfare.
Monetary Policy Support by the RBI
- The RBI reduced the repo rate by 125 basis points during 2025.
- A 100-basis-point cut in CRR, along with regulatory easing and open market operations, improved liquidity and credit transmission.
- These measures helped stabilise bond markets and support bank lending.
Emerging Signs of Private Investment Revival
- There are early indications of a recovery in private corporate capital expenditure.
- Production-Linked Incentive (PLI) schemes and emerging sectors are expected to account for a larger share of future investment.
- Data centres, cloud infrastructure, and artificial intelligence are becoming new drivers of growth.
Conclusion
India’s economic performance in 2025 reflects resilience built on strong fundamentals, timely fiscal support, and accommodative monetary policy. While challenges remain in the form of capital flow volatility and fiscal constraints, ongoing reforms, private investment revival, and improving global conditions offer a positive outlook. Sustained growth will depend on continued macroeconomic discipline and structural reforms.