India is reported to be the third-largest economy. Regardless of the challenging global conditions, India remains the world’s fastest-growing major economy, growing at a rapid clip of 8.2% in FY23/24. The economic growth is escalated by public investment in infrastructure and rising household investment in real estate.
The Reserve Bank of India (RBI) has projected a significant surge in India’s economic growth for the financial year 2025-26. As per the latest Monetary Policy Report released by RBI, the Indian economy is poised to grow at a pace of 7.2% to 7.5%, marking one of the fastest expansions among major global economies.
Additionally, RBI also noted India’s expanding role in global trade with participation in 14 free trade agreements (FTAs) and six preferential trade agreements (PTAs), and ongoing trade negotiations with Oman, Peru, the US, and the European Union (EU). All of these trade participations are expected to support trade growth.
Key Factors Driving Economic Growth
As per the report disseminated by SBI, FY25 GDP growth is likely to be 6.3%. Whereas Q4 is expected to grow at 6.4-6.5%. Additionally, the report stated that the Indian economy stayed “largely resilient” in the face of a downward global growth forecast and uptick in geopolitical risk.
But what makes India have third place in the economy?
Let’s get to know the key drivers of economic growth
1. Resilient Domestic Consumption
Private consumption contributes nearly 60% of the total GDP of India, becoming the cornerstone of the country’s economic aspect. The RBI notes a strong recovery in rural demand due to favorable monsoon forecasts—rising agricultural productivity and government welfare schemes. Urban consumption has also seen a steady rise, driven by higher disposable income and increased employment in manufacturing sectors and services.
2. Revival in Private Investment
As per the central bank, there is a renewed interest in private sector capital expenditure. The sectors like renewable energy, infrastructure, manufacturing, and real estate are witnessing increased investor confidence. The Production Linked Incentive (PLI) schemes have further accelerated domestic manufacturing—contributing to both job creation and exports.
3. Controlled Inflation and Stable Monetary Policy
As per reports, headline inflation is expected to remain within the RBI’s target range of 4% ± 2%. Additionally, the report credits improved declining global commodity prices, supply chain management, and timely interventions in food supply management. As the inflation is under control, the RBI is expected to maintain an accommodative stance while ensuring financial stability.
4. Exports and Global Integration
India’s exports are projected to rebound in 2025-26 as the global demand stabilizes. The key sectors contributing to the growth of the export sector include IT services, pharmaceuticals, and green technology. Bilateral trade agreements signed with countries in the EU and Southeast Asia are expected to enhance export volumes and diversify markets.
5. Digital and Structural Reforms
India’s digital reforms provide a higher contribution to the transformation of the country’s economy. The adaptation of digital payments, expansion of fintech, and rollout of 5G have facilitated business activities and e-commerce. Additionally, structural reforms in labor laws, taxation, and ease of doing business are also creating a more conducive environment for growth in India’s economy.
End Note
India’s economic growth in 2025-26 underscores the country’s resilience and growth potential in a dynamic global environment. As reported by RBI, the economy of the country will continue to grow and is expected to make positive changes in the present and upcoming year. From the export to digital sectors, all the key driving factors for economic growth of the country are also making positive changes. Therefore, with a balanced policy approach, stakeholders across sectors are also optimistic about sustained and inclusive growth in the upcoming year.
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