The Indian economy exits calendar year 2025 having demonstrated an important, if understated, achievement: it held the line in an increasingly fragmented and uncertain global environment. Growth in India remained robust by international standards, inflation was brought under control, financial stability was preserved, and external buffers stayed comfortable. These outcomes matter—and should not be minimised.

Yet 2025 will not be remembered as a year of economic redefinition. It was a year of consolidation rather than transformation, of risk management rather than structural leap. Beneath reassuring headline indicators persist familiar fault lines—uneven employment quality, shallow industrial depth, hesitant private investment, subdued rural confidence, and a growth model still overly reliant on public spending and services. In that sense, 2025 bought India time. What matters now is how decisively that time is used.

1.Growth Performance: Strong Momentum, Narrow Foundations

1.1 April–September 2025: What the Numbers Say
During the first half of FY 2025–26 (April–September 2025), India recorded real GDP growth of around 8.1 per cent, reflecting strong services activity, sustained government capital expenditure, and resilient urban consumption.

From a national accounting perspective, provisional estimates from MOSPI place growth slightly above 8 per cent for the first half. The Reserve Bank of India’s macroeconomic assessments broadly align with this view, while the IMF recognises the momentum but interprets part of it as cyclical and influenced by base effects. Importantly, services accounted for a disproportionate share of growth, while manufacturing and construction remained closely tethered to public spending.

1.2 Full-Year FY 2025–26 Estimates
As FY 2025–26 draws to a close, growth expectations converge within a relatively narrow but telling band. Trend-based official data suggest growth in the range of 7.2–7.5 per cent. The RBI projects growth at about 7.3 per cent, while the IMF places it closer to 6.6 per cent, reflecting greater caution on exports, capital flows, and global trade conditions. The divergence reflects differing global assumptions rather than disagreement on domestic demand resilience.

1.3 FY 2026–27: Early Outlook
Looking ahead to FY 2026–27, expectations are more restrained. Most projections cluster around 6.4–6.7 per cent. This moderation is not a sign of macroeconomic weakness, but of normalisation as post-pandemic tailwinds fade and global financial conditions remain tight. However, sustaining growth at this level will demand far more from policy execution than the rebound years did.

2.Inflation and Monetary Conditions: A Hard-Won Anchor
Inflation control was among the most consequential achievements of 2025. Headline consumer inflation declined steadily through the year, supported by food price moderation, relatively stable energy prices, and contained core inflation. This restored policy credibility and allowed calibrated monetary easing without triggering financial excesses or currency instability.

Entering 2026, the challenge will be to preserve this anchor amid risks from climate-related supply shocks, global commodity volatility, and renewed geopolitical disruptions. The margin for policy error is narrower than headline inflation trends might suggest.

3.Employment: Participation Up, Quality Still Lagging

Labour market indicators improved during 2025, particularly labour force participation rates. However, the improvement was more quantitative than qualitative. Employment generation remained concentrated in informal and low-productivity segments, manufacturing employment gains were modest, and wage growth lagged output growth across several sectors.

The economy created work, but not enough productive, secure employment to absorb demographic pressures. This remains one of the most binding constraints on India’s medium-term growth prospects.

4.Consumption and Household Behaviour: Resilient, Yet Guarded
Consumption continued to support growth, but with clear asymmetries. Urban demand remained resilient, supported by services and higher-income households, while rural consumption remained sensitive to income uncertainty and employment quality.

The sharp rise in household investment in gold and other physical assets revealed a deeper behavioural pattern. Rather than signalling exuberance, it reflected caution—a preference for stores of value over financial instruments. This has implications for financial deepening and the mobilisation of domestic savings into productive investment.

5.Industry and Manufacturing: Recovery Without Depth
Industrial output improved episodically in 2025, particularly toward the latter part of the year. Mining and select manufacturing segments performed better, but the recovery remained narrow and uneven. Capacity utilisation did not signal the onset of a decisive private investment cycle.

India’s manufacturing ambitions remain intact, but 2025 reinforced a recurring lesson: structural transformation cannot be inferred from short-term IIP spikes or isolated sectoral gains.

6. Agriculture: The Quiet Stabiliser
Agriculture played a quiet but stabilising role through 2025. Reasonably favourable monsoon conditions supported output and helped contain food inflation. While agriculture did not act as a growth engine, it continued to function as a macroeconomic shock absorber—an understated but critical contribution.

7.External Calm—With Unfinished Risks
Externally, India remained broadly comfortable. Foreign exchange buffers reassured markets, volatility was managed with relative dexterity, and no acute balance-of-payments stress surfaced. Yet beneath this surface calm, a layer of unease persisted. Portfolio flows remained fickle, responding more to shifting global financial cues than to domestic fundamentals. This was reflected most visibly in the continuing slide of the Indian rupee, an outcome that deepened market anxiety. The depreciation, to a significant extent, was influenced by episodes of capital flight and cautious repositioning by global investors—ironically unfolding even after the US rate cut, which under normal circumstances should have encouraged stronger FII flows into emerging markets such as India.

More importantly, the full effects of US tariff escalation and trade realignments have yet to meaningfully translate into economic outcomes. Some of the resilience witnessed in 2025 may well reflect front-loading of exports, investments, and inventory accumulation ahead of a more restrictive global trade regime. The prolonged delay in trade negotiations with the US adds another layer of uncertainty, the anxiety of which is likely to spill over into 2026.

Taken together, this constellation of deferred shocks, currency pressures, and unsettled capital flows raises an uncomfortable possibility: a part of 2025’s external comfort may, in fact, have been borrowed from the future.

8. Banking, Debt, and Capital Flows: Stability with Constraints
The banking system entered 2026 in a relatively healthy state, supported by improved balance sheets and manageable stress indicators. However, periodic liquidity interventions revealed underlying tightness in credit conditions.

Public debt remains manageable but constrains fiscal space, reinforcing the need for expenditure efficiency rather than fiscal expansion. Capital flows remained broadly supportive but volatile, underscoring India’s continued exposure to global financial cycles.

9. Policy and Reforms in 2025: Incrementalism and Emerging Trade-offs
The latter half of 2025 witnessed quiet but consequential policy recalibration. Labour-sector reforms continued to focus on simplifying compliance, encouraging formalisation, and improving ease of hiring while attempting to preserve worker protections. These changes signalled intent rather than instant transformation, but they matter for medium-term confidence.

In parallel, insurance-sector reforms, including steps toward higher foreign participation and regulatory streamlining, aimed to deepen long-term savings, improve risk coverage, and mobilise domestic capital for infrastructure and development. While still unfolding, these reforms strengthen financial intermediation beyond banks.

At the same time, discussions around restructuring MNREGA raised legitimate concerns. While rationalisation and efficiency are necessary, any dilution of its role as a rural safety net risks weakening income stability at a time when rural demand remains sensitive. The balance between fiscal prudence and social protection will remain a delicate policy test in 2026.

Overall, reforms in 2025 favoured continuity, predictability, and execution over disruption—appropriate in uncertain times, but demanding careful follow-through.

10. Union Budget 2026–27: From Fiscal Arithmetic to Economic Strategy
Against this backdrop, Union Budget 2026–27 assumes unusual significance. It has the potential to convert macroeconomic stability into a platform for structural advance—if pursued with conscientious, earnest, and imaginative intent.

Employment generation must move to the centre of growth strategy, supported by targeted incentives for labour-intensive manufacturing, construction, tourism, healthcare, and the care economy, alongside credible skilling aligned with digital and green transitions. Public capital expenditure should increasingly crowd in private investment through regulatory predictability, tax stability, and improved credit access for MSMEs.

Rural income revival must focus on productivity—through crop diversification, agri-processing, and supply-chain integration—rather than income support alone. Fiscal credibility should be reinforced through expenditure quality, subsidy rationalisation, asset monetisation, and stronger Centre–State coordination. Finally, progress on labour, insurance, education, and urban governance reforms will determine whether the Budget becomes an inflection point or merely another holding operation.

11. Prospects, Risks, and Policy Tests for 2026
India is likely to grow between 6.4 and 6.7 per cent in FY 2026–27—healthy, but increasingly demanding in terms of policy discipline.

Key risks include global trade fragmentation, capital flow volatility, commodity price shocks, and insufficient employment absorption. At the same time, enduring opportunities lie in domestic demand depth, infrastructure momentum, digital and services competitiveness, and financial system resilience.

The central test of 2026 will be whether stability is used productively—or merely preserved defensively.

Conclusion: Stability Is an Achievement—But Not a Destination

The Indian economy in 2025 demonstrated resilience, discipline, and institutional strength in a difficult global environment. But resilience is not transformation, and stability is not a substitute for structural depth. The year did not resolve India’s long-standing challenges—it postponed their reckoning.

That postponement is not a failure. It is an opportunity. Whether 2026 becomes a year of consolidation or a missed inflection will depend on the seriousness of policy choices now being shaped—most notably in Union Budget 2026–27. India has bought itself time. What it does with that time will define the trajectory of the decade ahead.