The strong macro-fundamentals of the Indian economy, recently acknowledged by the S&P sovereign rating upgrade, reinforce the optimistic outlook for the second half of the year (H2).
NEW DELHI (India CSR): The Indian economy continues to exhibit marked resilience despite elevated global uncertainties, driven primarily by strong domestic demand and significant structural reforms. As of late September 2025, high-frequency indicators and official data releases highlight key developments positioning India for sustained growth.
The Indian economy exhibited marked resilience as evident from the better-than-expected growth in Q1:2025-26. The dual engines of growth – consumption and investment – remained strong. Aggregate demand conditions remain robust characterised by strong rural remand in a low inflation environment.
This article outlines the top 11 facts defining the state of the Indian economy for global investors and analysts.
The 11 Key Facts
1. Robust Growth Achieves Five-Quarter High
India’s real Gross Domestic Product (GDP) growth picked up pace, reaching a five-quarter high in Q1:2025-26, registering 7.8 per cent (year-on-year). This acceleration was driven by domestic factors, notably robust consumption expenditure and fixed investment activity.
2. Domestic Demand Propels GDP
The primary drivers of GDP growth remain consumption and investment. In Q1:2025-26, consumption expenditure contributed 4.7 percentage points to growth, while gross fixed capital formation (fixed investment) contributed 2.7 percentage points. The strong growth in private final consumption expenditure was sustained by strong rural demand and easing inflation.
3. Landmark GST Structural Reforms Implemented
In September 2025, the GST Council set in motion major structural reforms. These reforms simplify rates, streamlining the four existing slabs (5, 12, 18, and 28 per cent) mainly into two slabs (5 and 18 per cent). Most essential items now attract ‘nil’ or 5 per cent GST, while a majority of electronic items and motor vehicles are taxed at 18 per cent. These changes are expected to boost tax buoyancy, improve compliance, and significantly enhance the ease of doing business.
4. Manufacturing and Services Activity Near Decadal Highs
High-frequency indicators point to robust expansion across key sectors in August 2025. The Manufacturing PMI surged to a near 18-year high, reflecting ongoing improvements in demand conditions and an increase in factory orders. Simultaneously, the Services PMI recorded its highest expansion since June 2010.
5. Inflation Remains Below Target for Seven Consecutive Months
Despite edging up marginally, the Consumer Price Index (CPI) headline inflation rate remained well below the target rate for the seventh consecutive month. CPI headline inflation stood at 2.1 per cent in August 2025, slightly up from 1.6 per cent in July. This moderation trend aligns with the disinflation experienced across Emerging Markets and Developing Economies (EMDEs).
6. Gold Prices Drive Uptick in Core Inflation
The marginal increase in core inflation (CPI excluding food and fuel) to 4.2 per cent in August was mostly driven by the uptick in gold prices. Gold, which is included in the ‘personal care and effects’ sub-group, contributed approximately 28 per cent to core inflation during August. This rise was buoyed by demand for safe-haven assets globally.
7. Current Account Deficit Moderates Significantly
India’s current account deficit (CAD) moderated in Q1:2025-26, supported by strong services exports and robust remittance inflows. The CAD stood at (-) 0.2 per cent of GDP in Q1:2025-26, a significant improvement compared to (-) 0.9 per cent in the corresponding quarter of the previous year.
8. Net FDI Inflows Hit 38-Month High
Net Foreign Direct Investment (FDI) inflows reached a 38-month high in July 2025. This surge was driven by higher gross FDI and slower repatriation/outward FDI. Major contributing countries included Singapore, the Netherlands, Mauritius, the US, and the UAE, with manufacturing and services being the top recipient sectors.
1. Net FDI Value: Net FDI in July 2025 was US$5 billion.
2. Drivers of the Surge: The high net FDI inflow was aided by two primary factors: Higher gross FDI. Slower repatriation and outward FDI.
3. Gross FDI: Gross inward FDI doubled from a year ago. The gross FDI value was US$11.1 billion in July 2025.
4. Repatriation/Outward FDI: Both repatriation of FDI and outward FDI moderated. Net outward FDI was US$-2.5 billion in July 2025.
5. Major Contributing Countries (Source Countries): The following countries together accounted for more than three-fourth of the total inflows:
1. Singapore
2. The Netherlands
3. Mauritius
4. The US (United States)
5. The UAE (United Arab Emirates)
6. Top Recipient Sectors: The main recipient sectors for FDI inflows were: Manufacturing. Services, including communication, computer, and business services.
7. Outward FDI Destinations and Sectors (Contextual Information): Although net FDI was high due to lower outward flows/repatriation, the outward FDI that did occur was mainly directed towards: Sectors: Financial, insurance, and business services, as well as manufacturing. Major Destinations: The US, Singapore, the Netherlands, Mauritius, and the UK.
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9. Domestic Investors Outpace Foreign Selling in Equities
Indian equity markets experienced bidirectional movements due to mixed global and domestic cues (including the impact of new US tariffs and positive GDP data). However, robust domestic institutional buying consistently offset selling activity by foreign portfolio investors (FPIs). Domestic institutional holdings have now surpassed FPI holdings in the Indian equity market.
10. Monetary Policy Easing Transmission is Robust
The policy rate transmission has been effective following the cumulative 100 basis points (bps) reduction in the repo rate between February and August 2025. The weighted average lending rate (WALR) on fresh rupee loans of scheduled commercial banks declined by 53 bps during this easing phase.
11. Rural Demand Remains Robust, Aided by Favourable Monsoon
Rural demand remains strong, demonstrated by robust retail tractor sales and a recovery in two-wheeler sales in August. This strength is aided by a favorable monsoon and easing inflation. Kharif sowing acreage also crossed the normal area for the full season, supported by above-normal cumulative rainfall.
(India CSR)