Prof Mithilesh Kumar Sinha
Department of Economics
Nagaland University, Lumami
India experienced significant economic growth in 2025, characterized by substantial GDP expansion and overtaking Japan to become the fourth-largest economy in the world. These achievements demonstrate resilience in the face of global challenges such as US tariffs, fueled by domestic demand and policy reforms. In 2025, India's economic story is marked by its ascent to the world's fourth-largest economy while concurrently addressing structural issues related to job creation and per capita income growth.
India attained a prominent global economic position, surpassing Japan to secure its status as the fourth-largest economy worldwide, with a nominal GDP estimated between $3.8 and $4 trillion. It continued to be the fastest-growing major economy globally, with real GDP growth projected at 7.8% in Q1 FY2025-26 and anticipated rates exceeding 6.5% for the fiscal year.
India witnessed strong recoveries and stabilization, with the services sector expanding robustly (9.3% in Q1 FY26) and manufacturing experiencing notable improvements (7.7%). Agriculture continued to perform significantly above trend levels. Retail inflation decreased considerably (approximately 4.6% in FY25), aided by government initiatives that enhanced consumer spending and disposable incomes.
Cumulative FDI inflows reached $1.05 trillion, with record equity inflows recorded in FY25. Total exports amounted to $825 billion in FY 2024–25, reflecting a 76% increase over the decade, driven by electronics (growing by 32%), pharmaceuticals, and engineering goods. MSME exports surged to Rs.12.39 lakh crore in 2024–25, with the number of exporting MSMEs more than tripling compared to 2020–21.
The Financial Inclusion Index increased to 67 in 2025, marking a 24.3% rise since 2021. The Pradhan Mantri Jan Dhan Yojana reached 55.98 crore beneficiaries, while UPI processed a record-breaking transaction volume. The Gross Non-Performing Assets (NPAs) of banks fell to a historic low of 2.6% by September 2024. The national highway network expanded to 146,204 km by March 2025, and the number of operational airports increased to 160. Government capital expenditure (capex) continued to serve as a key driver of growth, increasing to 24.5% of budget estimates at the beginning of the year.
Expectations for 2026: As India enters 2026, a combination of trade diplomacy, domestic reforms, and industrial policy is starting to take form, and India’s economy is poised to surge into 2026. It is anticipated that India will maintain its status as the fastest-growing major economy throughout 2026, with Morgan Stanley’s Global Investment Committee (GIC) estimating a real GDP growth of 5.9% in 2025 on a Q4-over-Q4 basis and 6.4% in 2026.
Various national and international organizations predict India's GDP growth to range between 6.5% and 7.5% for the fiscal year 2026 (FY26). Goldman Sachs projects a growth rate of 6.7% for the calendar year 2026, which is considerably higher than the global average. The Consumer Price Index (CPI) inflation is expected to remain moderate, likely falling below the Reserve Bank of India's (RBI) medium-term target of 4%. Predictions indicate that inflation may hover around 2-2.1% in FY26 before stabilizing later. This favorable inflation scenario has granted the RBI greater flexibility in its monetary policy.
The benign inflation landscape has enabled the RBI to reduce the repo rate, which is anticipated to enhance private investment and domestic demand. Growth across key sectors is expected to be widespread, with robust performance anticipated in areas such as automobiles, banking, FMCG, and pharmaceuticals, fueled by increasing disposable incomes and a recovery in rural demand. Additionally, technology-driven innovation and sustainability are emerging as significant factors influencing core industries.
