India’s Latest Economic Reforms 2025: Key Policy Changes Shaping Growth and Markets

In the latest news in India, policymakers have launched sweeping reforms as part of an economic policy push for 2025. These India policy updates cover tax reductions, higher spending and trade measures, aiming to sustain the country’s robust expansion (FY2024-25 GDP grew 6.5%). This article reviews these reforms and Indian stock market trends, providing a comprehensive India economy news update. Readers will gain insights into the new fiscal measures, updated GDP figures, and how markets are responding to reform-driven stimulus.

India Economy News: GDP Growth & Outlook

• FY2024–25 GDP: India’s real GDP grew 6.5% in FY2024–25, with the final quarter up 7.4% year-on-year. Nominal GDP (current prices) rose 9.8%. This growth was driven by strong domestic demand.
• Consumption & Investment: Private consumption expanded ~7.2% and fixed investment ~7.1% in FY2024–25. The construction sector (≈+9.4%) and services (e.g. public administration, finance) led growth. Agriculture and manufacturing also showed healthy gains.
• Inflation & Policy: Consumer inflation cooled to ≈2.1% by June 2025, its lowest level in years. This low inflation has given the RBI room to ease policy: the central bank cut interest rates by a cumulative 100 basis points over three early-2025 meetings to spur credit and spending.
• Growth Outlook: Economists project growth of about 6.4–6.7% for FY2025–26, assuming stable global conditions. The IMF similarly raised India’s forecast to 6.4% for both 2025 and 2026. These forecasts hinge on continued consumption and investment momentum, supported by the new reforms.

Together, these indicators show India’s economy remaining on a steady growth path. Even with global headwinds, recent policy support and strong domestic demand have kept the outlook positive.

2025 India Policy Updates: Fiscal and Budget Reforms

In the 2025–26 Union Budget (Feb 2025), the government announced major fiscal reforms to fuel growth. Key highlights include:

• Income Tax Cuts: A new tax regime exempts the first ₹12 lakh of income. Under the revised rates, salaries up to ₹12 lakh face 0% tax (effectively ₹12.75 lakh for salaried after standard deduction). This slashes middle-class tax burdens, leaving more money for consumption and saving. TDS (Tax Deducted at Source) thresholds were also raised – e.g. interest and rent deductions doubled – easing compliance for many taxpayers.
• Customs & Trade: The budget overhauled import tariffs. It removed seven duty rates (on top of seven already cut in 2023), streamlining duties into eight main slabs. Levies like Social Welfare Surcharge on 82 items were abolished. Overall, about ₹2,600 crore of indirect tax revenue was foregone to simplify trade and lower input costs. Duty exemptions were expanded on drugs, critical minerals and electronics components to boost local manufacturing.
• Fiscal Targets: The fiscal deficit for FY2025–26 is set at 4.4% of GDP, continuing a path of gradual consolidation. Gross market borrowing is planned at ₹14.82 lakh crore. Notably, the government allocated ₹11.21 lakh crore (3.1% of GDP) for capital expenditure – a record high – underscoring a focus on infrastructure and investment-led growth.
• Export & Agriculture Boost: To make exports the “fourth engine” of growth, the Budget launched an Export Promotion Mission with sectoral targets and a unified digital platform (BharatTradeNet) for trade documentation. In agriculture, new schemes target pulses and crops (e.g. a 6-year pulses self-reliance mission) and 100 low-productivity agri-districts under a “Dhan-Dhaanya Krishi” program, aiming to raise farm incomes and rural growth.

These India policy updates are designed to spur demand and investment. For example, the income tax cut alone will cost the exchequer about ₹1 lakh crore in forgone revenue, a deliberate stimulus to boost consumer spending. At the same time, tariff and compliance reforms improve the ease of doing business.

Goods and Services Tax (GST) Reforms

One of the biggest recent reforms is the overhaul of the GST structure. In August 2025, the Prime Minister announced a “Next-Gen GST” reform to lower consumption taxes by Diwali. Under this plan, the 12% and 28% GST slabs will largely be merged into new 5% and 18% tiers. This means ~99% of items currently taxed at 12% will move to a 5% rate.

Image: GST rate reduction chart for vehicles – an illustration of tax cuts. The two-tier GST will make many essentials and services cheaper. For example, GST on small cars and two-wheelers will fall from 28% to 18%, cement from 28% to 18%, and hundreds of household goods (toys, stationery, textiles) from 12% to 5%. Even hotel room rates up to ₹7,500/night drop from 12% to 5%. Life-saving drugs and diagnostic kits became 0% tax, and health/insurance premiums were fully exempted.

• Impact on Consumers: Lower GST rates will directly reduce prices for households. Economists note this “virtue cycle” – cheaper goods raise real incomes and consumption. Small businesses, especially in manufacturing and retail, benefit from simpler compliance and reduced input costs. For instance, cutting the inverted duty on fibers (textiles) and electronics parts will boost domestic factories.
• Revenue and Growth: These tax cuts are expected to cost the government around ₹50,000 crore (≈0.15% of GDP) initially. However, if lower rates stimulate buying and improve compliance, total GST collections could stabilize or even rise in future years. The measures are thus viewed as pro-growth, trading a bit of short-term revenue for higher demand and a broader tax base over time.

In sum, the GST reform is a major India economy news item for 2025, as it fundamentally changes how consumption is taxed. By simplifying slabs and lowering rates on many items, it aims to encourage spending while making tax administration more efficient.

Investment and Industry Reforms

India has also pursued reforms to attract capital and build industry. Notable measures include:

• Record FDI Inflows: India attracted US$81.04 billion in FDI during FY2024–25 – a 14% increase over the previous year. Most sectors now allow 100% foreign investment automatically. In the 2025 Budget, the FDI limit in insurance was raised from 74% to 100% (for firms that invest premiums domestically), signaling continued liberalization. Services led inflows (19% share) and manufacturing (especially electronics and machinery) saw strong growth in investment. This foreign capital supports technology transfer and job creation.
• Manufacturing Boost (PLI): The government’s Production-Linked Incentive (PLI) schemes have galvanized industry. By July 2025, 806 applications across 14 sectors (electronics, pharma, automobiles, textiles, etc.) had been approved under PLI. Realized investments under PLI reached about ₹1.76 lakh crore (~US$20.3 billion) by March 2025. For example, the electronics/IT hardware PLI is attracting billions in factories, while pharmaceuticals under PLI have helped India become a net exporter of bulk drugs. Overall output from PLI projects totaled over ₹16.5 lakh crore ($190 billion) by early 2025. The 2025 Budget maintains funding for these schemes, ensuring momentum in strategic manufacturing.
• Ease of Doing Business: Regulatory reforms were announced to cut red tape. A High-Level Committee will review dozens of non-financial rules and licenses to simplify industry regulations. The Jan Vishwas Bill 2.0 will further decriminalize over 100 provisions in various laws, reducing penalties for minor infractions. These steps, along with extended deadlines for startups and pension/sovereign fund investments in infrastructure, aim to improve the business climate.

These industrial reforms are reshaping India’s global competitiveness. The surge in FDI and PLI-backed projects reflects rising confidence among investors in India’s policy stability. By reducing barriers and offering incentives, these reforms seek to sustain high investment rates and job growth.

Monetary Policy and Inflation Trends

With reforms underway, monetary conditions have been accommodative. Key trends:

• Inflation: Consumer price inflation has moderated sharply. By mid-2025, inflation hit 2.1%, its lowest since 2019. Lower food and fuel costs helped, along with base effects. This benign inflation environment is unusual for India and boosts consumers’ purchasing power.
• Interest Rates: The RBI has taken advantage of low inflation to ease policy. Over three consecutive meetings (Feb–July 2025), the central bank cut the repo rate by 100 bps in total. This was the first rate-cut cycle in nearly five years. Lower rates reduce borrowing costs for businesses and households, encouraging investment and spending. However, real (inflation-adjusted) rates remain moderately positive, so banking spreads and savings returns stay healthy.
• Credit & Liquidity: Easing rates and government spending have increased liquidity. Bank lending rates have started to fall, particularly for new loans to infrastructure and MSMEs. Housing and consumer loans are also slightly cheaper, supporting credit growth.

Overall, the monetary stance is now growth-friendly, complementing fiscal reforms. Analysts expect that cheaper credit and steady prices will further boost demand across the economy.

Indian Stock Market Trends

India’s stock market trends have been broadly positive in 2025. The major indices recovered from spring volatility to reach new multi-month highs by early summer. By June 2025, the Sensex (~83,755) and Nifty 50 (~25,549) were at their highest levels of the year, just a few percentage points below all-time records. This rally was fueled by strong corporate earnings and improving investor sentiment, despite some global headwinds.

• Large-Cap Leadership: The rebound was largely driven by blue-chip sectors. Technology, banking, and consumer staples stocks led gains as investors sought stable growth. Notably, the renewed interest in quality large-cap names helped markets “climb all walls of worries,” as one strategist noted. Mid- and small-cap indices were more volatile and underperformed at times due to valuation concerns.
• External Factors: Several global cues aided the rally. In June, a temporary ceasefire in the Iran–Israel conflict eased oil supply fears, sending crude prices sharply lower. A weakening US dollar (three-year low in mid-2025) made Indian assets cheaper for foreign investors and boosted inflows. However, unresolved trade tensions (e.g. US tariff negotiations) and geopolitical risks did temper some enthusiasm.
• Capital Flows: Foreign investors have actually been net sellers in 2025. FIIs have pulled out about US$15.3 billion from Indian equities (≈₹2.4 lakh crore) by August 2025, a much larger outflow than the prior year ($0.8b in all 2024). The selling was attributed to profit-taking and global reallocation, as India’s market valuations (≈23x forward P/E) are relatively high. Domestic mutual funds and retail investors have largely absorbed these sales, keeping the market buoyant.

In summary, Indian stock market trends reflect cautious optimism. Indices are near record highs on sustained domestic buying, but heavy foreign selling means markets remain sensitive to global developments. With continued policy support and economic growth, market analysts remain moderately bullish on Indian equities for late 2025.

Table: Key economic indicators and reforms affecting growth and markets in 2024–25. Sources are official government releases and expert reports.

Conclusion

India’s latest economic reforms 2025 – spanning tax cuts, spending plans and investment incentives – are intended to sustain strong growth and market confidence. For ordinary citizens, measures like the new tax-free income bracket and lower GST rates mean more disposable income and cheaper goods. For businesses, streamlined tariffs, relaxed investment rules and large infrastructure budgets make the business environment more attractive. According to India economy news, these policy updates should support the roughly 6.5% growth already seen last year.

Meanwhile, Indian stock market trends remain broadly positive: by mid-2025, major indices were at or near record levels. Though foreign investors have been net sellers, domestic flows and earnings growth are helping markets hold ground. In sum, the latest policy reforms aim to strike a balance between fiscal prudence and growth stimulus. If implemented as planned, they are likely to keep India’s economy expanding at a healthy pace, with continued momentum in consumption, investment and financial markets.

FAQs

Q: What major policy changes did India implement in 2025?
A: The 2025–26 budget and related announcements introduced broad reforms. Major changes include a new personal tax regime with no tax on income up to ₹12 lakh, simplified GST with two slabs (5% and 18%) cutting many rates, reduced import duties, and an unprecedented increase in capital spending (₹11.21 lakh cr). The government also liberalized foreign investment (e.g. raising FDI cap in insurance to 100%) and boosted manufacturing via PLI schemes, among other measures. These updates aim to boost demand and improve the business climate.

Q: How did India’s economy perform in FY2024–25?
A: India’s economy grew strongly in FY2024–25. Official estimates show real GDP up 6.5% for the year, led by consumer spending and construction. Nominal GDP grew 9.8%. Private consumption rose 7.2% and fixed investment 7.1%. Low inflation (≈2%) and continued government spending supported the expansion.

Q: What effect will the new GST reforms have?
A: The “Next-Gen GST” cuts tax rates on many items, reducing costs for consumers and businesses. Common goods like automobiles, fabrics, and education materials will see GST cut from 12–28% down to 5%. Cheaper taxes are expected to boost demand: economists say lower prices will increase spending and expand the taxable base. In the near term, the reforms will slightly reduce tax revenue (estimated ~0.15% of GDP), but should foster higher growth if they spur consumption and compliance.

Q: What is the growth outlook for 2025–26?
A: Growth forecasts for FY2025–26 are around 6.4–6.7%, assuming normal monsoons and global stability. This is slightly below the previous year but still strong. The IMF projects 6.4% for 2025/26. Continued policy support (tax cuts, infrastructure spending, low rates) and strong consumer demand underpin these forecasts. If reforms work as intended, India can maintain a stable growth trajectory.

Q: How have stock markets responded to these reforms?
A: India’s stock markets have generally held up well. In 2025, benchmark indices hit new highs – the Sensex and Nifty were trading near record levels by mid-year. Large-cap stocks, especially in banking and IT, led the rally. However, foreign investors have turned cautious: FIIs have withdrawn roughly $15.3 billion from Indian equities in 2025 (versus $0.8b in 2024). Overall, markets are pricing in continued growth but remain sensitive to external shocks.