India’s Economic Outlook

For India, 2025 will be the year of “resilience” in domestic demand, decisive “reforms” in fiscal, monetary and labor policies, and “recalibrations” in trade policies. Real GDP grew 8% in the first half of FY2025-26 despite global headwinds such as trade disruptions, policy shifts in advanced economies, and volatile capital flows. Deloitte now expects FY2025-26 GDP growth at 7.5%-7.8%, supported by festive demand and robust services activity. Growth may moderate to 6.6%-6.9% in FY2026-27, reflecting a high base and persistent global uncertainties.

What is working: Policy reforms supporting demand and credibility

• Domestic demand boost: Direct tax exemptions for the middle-income class under the Union Budget 2025 lifted disposable incomes, while accelerated GST 2.0 slab rationalisation ahead of the festive season supported consumption, and aided MSMEs and the informal sector amid weak external demand.
• Investment push: Public investment remained the central growth anchor, with capital expenditure sustained at 3.4% of GDP in H1 FY2025-26, helping crowd in private investment.
• Fiscal consolidation: Growth support was delivered alongside fiscal discipline, with the fiscal deficit targeted at 4.4% of GDP, down sharply from 9.2% in FY2021. his credible consolidation path, underpinned by disciplined spending and stable revenues, strengthened investor confidence and culminated in S&P upgrading India’s sovereign rating in August 2025, the first upgrade in 18 years.
• Monetary policy support: With inflation easing to multi-year lows, the RBI delivered a cumulative 125-basis-point rate cut in 2025 to support growth and revive credit demand. While transmission remained uneven and capital outflows increased as India-US rate differentials narrowed, accommodative policy helped sustain domestic demand amid global volatility.
• Trade recalibration: As global trade conditions weakened and US tariffs affected select Indian exports, policymakers focused on diversifying export markets. India concluded three high-profile agreements, the India-UK CETA, India-Oman CEPA, and the India-New Zealand FTA. In parallel, India deepened engagement with emerging economies across Asia, Africa, and the Middle East, aligning with the structural shift toward South–South trade and investment and reducing dependence on advanced economies amid rising trade fragmentation.