India’s economic journey in mid-2025 reflects a healthy balance of optimism and prudence. While growth momentum stays strong, recent moves by banks, tax authorities, and the government highlight an environment increasingly focused on sustainability, inclusiveness, and financial discipline.
Moderate Yet Resilient Economic Expansion
India’s economy is forecasted to grow at 6.4% in FY26, holding its position as a high-performing global economy. This growth is being driven by state-backed capital investments, robust consumption trends, and an expanding digital and services sector.
The government’s push for infrastructure modernization, combined with favorable monsoon conditions, is enhancing rural demand and national output.
Cooling Inflation Offers Relief to Households
In a major turnaround, CPI inflation fell to 2.1% in June 2025, marking a two-year low. This steep drop is largely due to improved supply chains and reduced volatility in essential goods prices.
Lower inflation has given the Reserve Bank of India room to maneuver, with experts predicting a policy rate cut that could reduce borrowing costs and enhance liquidity in the market.
Shift in Lending Patterns Signals Risk Management
Amid rising concerns about personal loan defaults, banks are recalibrating their lending strategies. Lenders are now placing stricter checks on unsecured loans, particularly in the retail credit space.
While this may slow short-term consumer lending, it’s being viewed as a healthy correction that could strengthen financial sector stability in the long run.
Car Sales Dip, But SUVs Rule the Roads
The auto sector reported a 12% drop in sales this quarter, yet the SUV segment has remained resilient. SUVs now dominate over two-thirds of passenger vehicle sales, signaling a notable change in buyer preferences.
Rural markets have emerged as strong contributors, thanks to improved rural incomes and better road connectivity under government schemes.
New Tax Slabs Reshape Disposable Incomes
A significant policy move this July was the increase in the income tax exemption threshold to ₹12.75 lakh. This reform is expected to inject fresh spending power into the middle class, leading to growth in real estate, consumer goods, tourism, and retail.
The resulting increase in consumption could help offset external demand weaknesses.
Export Sector Under Pressure
June 2025 saw a 9% drop in merchandise exports, primarily due to sluggish demand in Europe and North America. The total export value fell to $35.14 billion.
In response, the government is accelerating its diversification of export markets, including fresh trade discussions with African and South American nations to broaden trade resilience.
Three Pillars of Growth: Digital, Infrastructure, and MSMEs
The current economic framework rests on three key pillars:
- Tech-Driven Innovation: Strengthening digital public infrastructure and enhancing fintech adoption
- Nationwide Infrastructure Drive: Expanding highways, logistics zones, and urban mobility systems
- MSME Upliftment: Easing regulations, enabling fast-track loans, and launching export promotion programs for small businesses
These areas are expected to contribute significantly to GDP and employment generation in the second half of 2025.
Looking Ahead: Confidence with Caution
India’s economy enters the second half of the year with a solid foundation stable prices, tax relief, increasing rural activity, and a growing digital backbone. While global demand and lending constraints remain areas of concern, India’s internal market strength and reform-centric governance present a cautiously optimistic outlook.
If the upcoming festive quarter maintains current trends, India may close the year with stronger-than-expected economic performance.
