The Indian economy is maintaining its robust growth trajectory in 2025, solidifying its position as the fastest-growing major economy in the world. Driven by strong domestic demand, a proactive government reform agenda, and a resilient services sector, India’s economic fundamentals remain sound, providing a stark contrast to the more subdued growth outlook for many other global economies.
According to the latest projections from the International Monetary Fund (IMF), India’s economy is forecast to grow by 6.4% in 2025, with a similar rate projected for 2026. This performance is a testament to a decade of strategic reforms and a dynamic economic landscape. Furthermore, in a significant milestone, India surpassed Japan in June 2025 to become the fourth-largest economy in the world, a testament to its rapid ascent on the global stage.
Key Drivers of Growth
Several key factors are fueling India’s economic expansion:
- Strong Domestic Demand: Domestic consumption continues to be the largest contributor to GDP, with both urban and rural demand showing resilience. The government’s fiscal and monetary policies, including recent interest rate cuts and tax rationalizations, are supporting consumer spending and business investment.
- Government-Led Infrastructure Push: Public investment in infrastructure remains a cornerstone of the growth strategy. The government’s capital expenditure, particularly on national highways, ports, and railways, is creating a strong multiplier effect, boosting job creation and industrial activity.
- Resilient Services Sector: The services sector, which accounts for approximately 60% of GDP, is a key growth engine. IT services, financial services, and professional services are performing exceptionally well. India’s digital public infrastructure, including platforms like the Unified Payments Interface (UPI), has also seen unprecedented growth, with digital transactions surging and contributing to economic efficiency.
- Manufacturing and Exports: The “Make in India” initiative and Production Linked Incentive (PLI) schemes have reinvigorated the manufacturing sector, attracting significant foreign direct investment (FDI). India’s total exports reached a record high in 2024-25, with strong performance in sectors like engineering goods, electronics, and pharmaceuticals.
Policy Reforms and Economic Outlook
The Indian government has continued to implement a series of forward-looking reforms to sustain this momentum. The recent passage of the Income-tax Act, 2025, and an upcoming overhaul of the Goods and Services Tax (GST) are aimed at simplifying the tax structure and boosting consumer demand. These measures, along with ongoing efforts to liberalize foreign ownership rules and streamline business regulations, are creating a more transparent and predictable environment for investors.
While global trade tensions and geopolitical uncertainties pose potential risks, India’s strong economic fundamentals and sound policy management are expected to help it navigate these challenges. The sustained growth of its economy, supported by a young and expanding workforce, is not only improving living standards at home but also enhancing India’s role as a vital driver of global economic activity.