economy-2025-hard-lessons-that-made-for-a-bumpy-ride

From Donald Trump’s trade war to the AI boom in US stock markets and China restricting its rare earth magnets’ exports, it’s been a tumultuous year for both the global as well as the Indian economy.

 
Of the many hard lessons that India learnt, the most poignant is also one of Warren Buffet’s favourites – never keep all your eggs in one basket. With the US administration having imposed some of the highest tariffs of 50 per cent on Indian exports, the government was forced to seek trade collaborations elsewhere than rely on its largest trading partner. This translated into the latter half of the year being dedicated to negotiating free trade agreements (FTSs) with countries like New Zealand, Australia, Oman, the UAE, EU etc. 

It also inspired big policy changes – including an overhaul of the Goods and Services Tax (GST) system, interest rate rationalisation by the Reserve Bank of India (RBI), and an ambitious push to domestic semiconductor manufacturing and rare minerals’ mining. However, the economy also received jolts in the form of an all-time drop in the value of the rupee versus the US dollar, lifetime rallies of gold and silver, and persistent outflow of foreign investments. 

Let’s take a look at all the defining moments of the past year, which will invariably determine that path that the Indian economy takes in 2026. 

Manufacturing: India’s manufacturing sector took a hit in 2025, with growth slowing to a 14-month low in the April-October period – when the Index of Industrial Production (IIP) grew just 3.3 per cent – the lowest in the seven-month time period since the pandemic. This was the result of a sluggish consumer demand, high US tariffs on Indian products, weakening rupee, and jittery foreign investors who continued to pull out capital. 

A sudden upswing in the November 2025 data, which indicates strong industrial performance in the form of a 6.7 per cent growth – the fastest in 25 months – as well growth in manufacturing at 8 per cent, mining sector growth at 5.4 per cent and consumer durables and non-durables growth at 10.3 and 7.3 per cent respectively, has been encouraging. But, economists feel that it may be more of an anomaly than an indication of a consistent trend, especially with the RBI projecting the GDP growth to slow down to 6.5 per cent in the fourth quarter from an average of 8 per cent in the first two quarters. 

Agriculture: A bountiful monsoon in 2025 meant India’s foodgrain and horticultural yields continued to rise, aided by adequate supply of subsidised fertiliser, direct cash transfer, and assured purchase from farmers at remunerative prices. 

The production of rice, wheat, pulses and coarse meals rose 7.7 per cent to a record high of 357.73 MT in the 2024-25 crop year, while horticulture production was up 4 per cent to 369.05 MT. 

However, this did not translate into improved incomes for the farmers, who remain in distress with mandi prices of many agricultural commodities ruling below the Minimum Support Price (MSP). Persistently low food inflation may help the macroeconomic data look good, but it also tilts the trade numbers against the farmers.

In the new year, the government should focus on technological upgrades like the Kisan Pehchaan Patra aimed at creating a farmers’ digital registry to help divert scheme benefits to the producers under PM-AASHA and PM Kisan Samman Nidhi; increasing credit flow and loan disbursal to the agricultural sector; and lowered dependence on imports of edible oils and pulses.

 

Also Read: RBI to focus on financial stability, growth in 2026

 

The Russian oil challenge: India took advantage of discounted rates offered by Russia in crude oil after Western sanctions following its invasion of Ukraine in 2022 cut down its oil exports. From only 2.5 per cent, India ramped up its purchase of Russian crude to almost 35 per cent in the 2024-25 financial year. 

In the April-November 2025 period, Russia became India’s third-largest source of imports. This was dealt a blow by a 25 per cent additional tariff imposed by the US for buying Russian crude oil, which it claimed fueled the Russian war machine. It subsequently imposed sanctions on major Russian oil companies like Rosneft and Lukoil from October 2025, forcing Indian to slash imports from Moscow to 32 per cent in the April-October 2025 period. 

Even though India continued to assert its right to trade with a time-tested partner like Russia, signing a joint Programme for Economic Cooperation that aims to increase bilateral trade to $100 billion by 2030, US pressure has dented India’s discounted oil purchases, likely to reflect on its economic data in 2026.

Rupee’s roller-coaster ride: The Indian domestic unit depreciated nearly 6 per cent in 2025 – the most in a calendar year since 2023 – impacting investor confidence, foreign fund flows, inflation trends, and trade and energy imports. With the FPIs having sold equities worth $26 billion until mid-December, and their investments in IPOs and institutional placements having halved from the previous year, the rupee is expected to remain at 89-90 against the greenback in FY27. A softening dollar and the prospect of an India-US trade deal remain its only hopes at appreciation. 

US dollar weakness also led to all-time highs of gold, silver and platinum in 2025, with gold gaining almost 70 per cent and silver more than 150 per cent. While silver prices soared by Rs. 9,350 to hit a fresh lifetime high of Rs. 2,36,350 per 10 gms in New Delhi on December 26, gold too maintained its upward climb, jumping Rs. 1500 (for 99.5 per cent purity in the yellow metal) to touch a new record of Rs. 1,42,300 per 10 gms. 

GDP, GST rate-cut and RBI interest rate rationalisation: The growth of real GDP to 8 per cent in the first half of FY26 from 6.1 per cent in the year-ago period was perhaps the biggest reason for jubilation for the government, aided by the Centre’s decision to slash Goods and Services Tax (GST) rate slabs to two and cut down prices of essential goods to drive domestic consumption, and the RBI’s cutting down of interest rates twice this year to reduce borrowing costs and help infuse more liquidity support. 

But economists are more concerned about the nominal growth that decreased to 8.8 per cent from 8.9 per cent at current prices. CareEdge expects GDP growth to moderate in the second half of FY26 to about 7 per cent as exports slow down after the festive season demand eases. On the positive front, Current Account Deficit (CAD) will likely remain under 1 per cent of GDP in the current and next fiscal years, while the fiscal deficit may even revert to pre-pandemic level of under 4 per cent.

Looking ahead: The new financial year is expected to be no less bumpy, with global trade headwinds unlikely to settle in the backdrop of a volatile geopolitical scenario. 

The Nifty 50 gained around 9 per cent in 2025, largely buoyed by domestic funds that pumped in Rs. 4.8 lakh crore into equities. Retail investors will now seek clarity in sector- and company-specific growth. To boost local and global consumption – especially in pharmaceuticals, services sector, housing, and capital goods – India will require a careful diplomatic strategy whilst it focuses on clearing-up ground-level bottlenecks that hinder industry and manufacturing growth.

 
The Centre should look to modernise its port and road infrastructure, lower electricity costs, and improve its skillforce in helping build advanced electronics and battery technology to infuse confidence in investors and accelerate self-reliance in critical technologies, such as AI. It also needs to drive innovation to rise from its measly 38th position in the Global Innovation Index 2025.