Summary of this article
GDP growth strengthens as domestic demand remains resilient
Inflation falls sharply while unemployment trends lower
Trade, exports and external buffers show steady improvement
A strong phase has emerged in 2025, with the focus on economic expansion and development, according to the research conducted by the Press Information Bureau (PIB).
Real gross domestic product (GDP) grew by 8.2 per cent in the second quarter of FY 2025-26; this is higher than 7.8 per cent during the previous quarter and 7.4 per cent during the last quarter of FY 2024-25. This is the highest level seen during the current period of six quarters and signifies domestic demand resilience. This has crowned private consumption, along with government expenditure and performance of the industry and service sectors.
Growth Momentum Further Strengthens
The real gross value added (GVA) grew by 8.1 per cent in the second quarter, driven by growth in manufacturing, construction, and services sectors. Indications of high-frequency data suggest that economic activities have remained strong even in quarters following the second quarter. Credit to the commercial sector, urban consumption, and financial conditions remained supportive of economic growth.
This is reflected in the Reserve Bank of India's (RBI's) revision in its GDP growth forecast for FY 2025-26 to 7.3 per cent from its previous estimate of 6.8 per cent. RBI attributed this to domestic demand, front-loading of the government's capital expenditure outlay, changes in income tax as well as Goods and Services Tax rates, and easing of crude oil prices.
Looking forward, favourable agricultural outlooks, balanced corporate balance sheets, and stable financial systems are expected to help promote economic growth. Exports of service sectors are also expected to stay strong.
Unemployment Continues to Decline
The indicators for employment have continued improving in 2025. During November, the unemployment rate among individuals aged 15 years and over decreased to 4.8 per cent from 5.4 per cent in October. This was the lowest rate since April 2025. The unemployment rate was mainly reduced by better performance among women in rural areas.
Urban unemployment of females decreased to 9.3 per cent from 9.7 per cent, while total unemployment in rural females decreased more sharply to 3.4 per cent from 4.0 per cent. Total rural unemployment dropped to a new low of 3.9 per cent, while the unemployment rate in urban areas eased to 6.5 per cent.
Participation in the labour market is also on the up. The labour force participation rate for people aged 15 and above is now at 55.8 per cent in November, the strongest in seven months. The ratio of the workers population is now at 53.2 per cent, showing more members of the population are ready and capable of finding employment. It is a positive indicator for the labour absorption rate.
Inflation Eases to Multi-Year Lows
The inflation eased considerably in 2025, opening up space for support from the policy regime to economic expansion. The Consumer Price Index (CPI) inflation rate eased from 4.26 per cent in January to 0.71 per cent in November. The headline inflation recorded a historical low of 0.25 per cent in October, which was largely a correction in food inflation.
The inflation forecast for CPI during the fiscal year 2025-26 stands at 2.0 per cent, which is well within the target range of 2-6 per cent set by the central bank. The breakdown forecast indicates 0.6 per cent inflation during the third quarter and 2.9 per cent during the fourth quarter of the fiscal year 2025-26. It is expected that inflation will increase slowly and remain close to the medium-term inflation target during the fiscal year 2026-27.
The wholesale price inflation trend was not very different either. Beginning the year with 2.31 per cent in January, wholesale inflation softened and moved closer to slightly negative in November. The overall trend of easing prices suggests easing pressures in the cost segment.
As far as the inflation rate is concerned, the Reserve Bank of India eased its policy by cutting the policy repo rate by 25 basis points to 5.25 per cent, with a neutral policy stance, as it is awaiting a benign inflation environment.
The Trade and External Sector Indicates Resilience
The performance on the trade front showed continuous improvement throughout the year. The value of merchandise exports increased from $36.43 billion in January 2025 to $38.13 billion in November.
Several Commodities Showed Double-Digit Growth
The exports of services also remained a major source of strength. The exports of services during April to November 2025 showed an increase of 8.65 per cent to the extent of estimated $270.06 billion, mainly on account of computer and business services.
The foreign exchange reserves were at $686.2 billion in late November, ensuring import cover of over 11 months. The current account deficit eased to 1.3 per cent in the second quarter of FY 2025-26, influenced by strong services exports and increased remittances.
