India Retains Fastest-Growing Major Economy Tag with 6.2% GDP Growth; Inflation Eases Further

India continues to lead as the world's fastest-growing major economy, with a projected GDP growth of 6.2% for the fiscal year 2025–26, according to the latest government economic review. This marks a slight downward revision of 30 basis points from earlier estimates but still positions India ahead of other major economies amid global uncertainties and trade tensions.

India's economic growth is projected to be the fastest among major economies despite tariff-induced challenges (File image)

Inflation Trends and Monetary Policy

Retail inflation in India has shown a downward trend, reaching 3.16% in April 2025—the lowest since July 2019. This decline is largely attributed to a good rabi harvest and increased sowing of summer crops, leading to reduced food prices.

The Reserve Bank of India (RBI) has maintained a cautious approach towards interest rates, with Governor Sanjay Malhotra indicating a preference for maintaining the status quo or considering cuts, reflecting the current inflation trends.

Sectoral Performance and Economic Resilience

India's services sector continues to be a significant contributor to economic growth, offsetting weaknesses in merchandise exports affected by global trade disruptions. The manufacturing sector is also undergoing a transformation, with the country shifting from its traditional role as a back-office service provider to becoming a global exporter of advanced industrial products, including locomotives and aerospace components.

Global Standing and Future Outlook

India has overtaken Japan to become the world's fourth-largest economy and is projected to surpass Germany by 2027, becoming the third-largest global economy. This advancement is supported by strong domestic consumption, government capital expenditures, and strategic reforms aimed at enhancing industrial capabilities.

The International Monetary Fund (IMF) projects India's economy to grow by 6.2% in 2025 and 6.3% in 2026, maintaining its position as the fastest-growing major economy over the next two years.

External Trade and Investment

India's finance ministry has indicated that a successful trade deal with the United States could significantly boost Indian exports and open new markets. Discussions are ongoing, with hopes of finalizing an interim agreement by early July, amid concerns over potential U.S. tariff escalations. 

Additionally, foreign investment in India's banking sector has seen a significant development with Sumitomo Mitsui Banking Corporation's $1.58 billion acquisition of a 20% stake in Yes Bank, marking India's largest foreign banking investment in five years. This reflects growing interest from strategic foreign investors seeking to support India’s rapidly expanding economy.

Conclusion

India's economic trajectory remains firmly upward, underpinned by a resilient domestic market, supportive government policy, and a diversified growth model that leverages both traditional and emerging sectors. Despite global uncertainties—from inflationary pressures to trade tensions—India’s structural reforms, emphasis on manufacturing, and expanding services sector continue to drive robust performance. With inflation easing and investment flows increasing, the country is well-positioned not just to maintain its status as the fastest-growing major economy, but to emerge as a central player in shaping the global economic order in the coming decade.

(Sources: Firstpost, Business Today, Times of India)