India’s influence in the world
The year 2025 has proved to be historic for the Indian economy in many ways. Amidst the volatile global environment, India not only maintained its growth rate but also achieved a milestone that every Indian was dreaming of. Despite the challenges of US tariffs and geopolitical tensions, India has overtaken Japan to be crowned the world’s fourth largest economy.
This year was not just a juggernaut of figures, but also witnessed huge relief for the common man on the inflation front and trade agreements signed with many big countries of the world. Let us understand in detail how the economic health of the country was in 2025 and what effect it had on your pocket.
India’s voice is ringing in the world
The biggest news of the year came from the International Monetary Fund (IMF) data. India’s nominal GDP reached 4.187 trillion dollars, which left Japan’s figure of 4.186 trillion dollars behind, albeit by a small margin. Economists are considering this not just as a figure, but as evidence of India’s growing global threat. This change is the result of increase in domestic demand and increase in investment activities.
Big relief from inflation, thali became cheaper
The most comforting news for the common man was on the inflation front. A huge decline was seen in the retail inflation rate in the year 2025. In the month of October, the inflation rate fell to a record 0.25 percent. This had a direct impact on the kitchen budget, because the prices of food items came down significantly. Food inflation rate turned negative (minus 5.02 percent) due to abundant supply of vegetables, grains and pulses. Apart from this, the changes made in GST by the government also helped in controlling inflation by about 85 basis points. However, due to sustained demand in the service sector, core inflation remained between 4.3 to 4.5 percent.
India connecting with the world: New friendship with Britain and Europe
This year was a year of ‘connectivity’ for India in terms of business. The Free Trade Agreement (FTA) signed with Britain in July opened new doors for Indian exporters. With this agreement, Indian goods got easy access to the British market, while vehicles and selected products coming from Britain became cheaper in India.
Additionally, the agreement with the European Free Trade Association (EFTA) comprising countries like Switzerland and Norway came into effect from October 1, promising investments of $100 billion over the next 15 years. The agreements signed with New Zealand and Oman by the end of the year have also strengthened India’s trade position in Asia-Pacific and Gulf countries.
Challenge of rupee against dollar
While on one hand the economy was running, on the other hand there were some concerns also. The stringent tariffs imposed by America on Indian exports affected investor sentiments. Its effect was visible on the Indian rupee. The rupee weakened by about 4-5 percent against the dollar in a year. The dollar which was worth Rs 86.23 in January, touched the level of Rs 90 by December. This fall of the rupee was the worst performance since 2022, which was due to the withdrawal of foreign capital and US trade policies. Due to the weakening of the rupee, goods coming from abroad, especially crude oil and electronics, may become slightly costlier.
Despite these challenges, the Indian government’s coffers remained full with tax collection. There was a huge jump in direct and indirect taxes, which helped in controlling the fiscal deficit. Global institutions like the World Bank and IMF have patted India on the back and described it as the fastest growing major economy in the world, which is set to maintain its momentum in the coming years.
Also read- From manufacturing to trade, the picture of India’s economy can change in the year 2026.