India’s 8.2% GDP Growth Signals the Success of Sustained Reforms - orfonline.org
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The surprise is not India’s real GDP growth rising to 8.2 percent in the second quarter of the financial year 2025-26 — compared to 5.6 percent in the same quarter of the previous year and marking a six-quarter high — but rather the narrow differential between real and nominal GDP growth, which stands at just 8.7 percent. Against several headwinds, from warring geopolitics and narrowing energy sourcing to unreasonable tariff assaults and high interest rates, India’s economic agents have delivered an aggregate growth number that no other large economy can match. India’s tertiary sector continued to lead with a growth rate of 9.3 percent, the secondary sector followed with 7.6 percent, while the primary sector lagged behind the surge at 2.9 percent.
A consumer price index, or the inflation rate, of 0.25 percent has taken the wind out of real economic growth. A higher inflation rate, of, say, 2-3 percent, would have taken India’s nominal GDP growth to double digits. And while the general inflation rate is indicative, the prices of vegetables and pulses fell by 27.6 percent and 16.2 percent, respectively.
Prices are now stable, even falling in some cases, but high interest rates are becoming a drag on growth. To increase the inflation rate and fuel higher growth, the mandarins of Mumbai’s Mint Road should cut policy rates to bring the inflation rate to 4 percent, as mandated.
When India is described as a US$4 trillion economy on its way to US$10 trillion, the reference is to nominal GDP. Comparisons of economic size across countries are also made on the basis of nominal GDP. For households, companies, and governments, nominal calculations feel more real than any statistical vocabulary. Whether it is salaries, turnovers, or taxes collected, nominal is the effective nomenclature. Real GDP growth tells us the strength of the underlying economic agents, while nominal GDP places a layer of price increases atop it. Nominal GDP is approximately real GDP plus inflation.
A balance is needed, and today the economy needs a dose of inflation to push growth higher. The ball of nominal GDP growth is now in the Reserve Bank of India’s (RBI) court, which must slash interest rates. The repo rate, or the rate at which the RBI lends to commercial banks, is 5.50 percent. In its 3-5 December 2025 Monetary Policy Committee meeting, the Central Bank may get lost in the momentum of conservative gradualism, guided by the September 2016 statutory framework for maintaining price stability, while keeping in mind the objective of growth.
Prices are now stable, even falling in some cases, but high interest rates are becoming a drag on growth. To increase the inflation rate and fuel higher growth, the mandarins of Mumbai’s Mint Road should cut policy rates to bring the inflation rate to 4 percent, as mandated.
Successful Reforms
On its part, Prime Minister Narendra Modi’s government has been pursuing economic reforms consistently and with conviction. Over the past decade, the Union government has rolled out a series of major structural reforms alongside minor policy reforms. On 21 November 2025, it delivered the most difficult of all reforms by implementing the four labour codes. These will enable entrepreneurs to build or grow their enterprises without the burden of complex compliance requirements while protecting workers.
In 2017, Modi reformed indirect taxes through the Goods and Services Tax (GST), which is arguably the most complex economic reform in India. It comprised enacting one Constitutional Amendment, four Union laws, 29 State laws (now 28), and one notification for seven Union Territories (now eight) into one comprehensive policy. It compressed eight Union taxes and nine State taxes into a single GST. Over the past five years, GST collections have doubled to INR22 lakh crore, and for the financial year 2025-26, they are expected to be higher.
The Insolvency and Bankruptcy Code, enacted in May 2016, has enabled the time-bound resolution of insolvency by amending 10 outdated laws, including the Sick Industrial Companies (Special Provisions) Act. This law allows an entrepreneur to exit a failing company and is an important step towards a more efficient business environment. Since then, the law has overseen more than 8,000 resolution processes with a realisable value of INR3.58 lakh crore.
Some of the other policy reforms include the Pradhan Mantri Jan Dhan Yojana in 2014, which delivered financial inclusion at a scale unseen—the scheme created 15 million accounts for the unbanked, enabling each to obtain a debit card and access social security schemes such as insurance and pension. In 2025, 571 million beneficiaries held a cumulative balance of INR274,863 crore.
Over the past decade, the Union government has rolled out a series of major structural reforms alongside minor policy reforms. On 21 November 2025, it delivered the most difficult of all reforms by implementing the four labour codes. These will enable entrepreneurs to build or grow their enterprises without the burden of complex compliance requirements while protecting workers.
Payment reforms, initiated by Prime Minister Manmohan Singh but executed and scaled up by Modi, have enabled India’s digital public infrastructure to morph into a global leader. So elegant is the infrastructure and so open the Indian people to using it that the value of transactions crossed the GDPs of various countries almost every other month—Iceland in June 2020, Slovenia in July 2021, Oman in March 2022, Ukraine in July 2023, and Finland in March 2025. On an annualised basis, UPI transactions by value exceed the GDPs of Italy, Brazil, and Canada.
Ayushman Bharat has delivered tertiary healthcare coverage to the poorest 100 million Indians. A fiscal boost worth INR20 lakh crore, or 10 percent of the then GDP, through crisis reforms during COVID-19, enabled businesses to keep going. Jan Vishwas 1.0 delivered a framework for decriminalising economic offences; however, it decriminalised only 113 out of 5,239 clauses. Jan Vishwas 2.0, likely to be enacted in the Winter or Budget session of Parliament, is expected to do better. As many as 1,500 obsolete laws have been removed; another 120 are expected to be repealed in the Winter session.
In 2025 alone, triggered by the unjustified tariffs imposed by US President Trump, the government has tweaked the GST, bringing most products and services under two rates (5 percent and 18 percent), though the total number of slabs stands at seven (nil, 0.25 percent, 3 percent, 5 percent, 12 percent, 18 percent, and 40 percent). Further, the government approved an INR7,280 crore scheme to promote the manufacturing of sintered rare-earth permanent magnets, which are crucial components in electric vehicles, electronics, aerospace, and defence equipment.
Reforms Left Unfinished and Unaddressed
Had the three agriculture laws delivered the farm reforms the country has been debating for a quarter century, they would have ushered in greater prosperity and flexibility for small farmers. Irrespective of the political economy constraints and their capture by rich farmers and middlemen, the rollback of these three laws is perhaps Modi’s biggest policy error.
If Modi were to hard-code measures to end corruption in the recently announced 8th Central Pay Commission, which further increases the pay, perks, and health and retirement benefits of government servants, it would not only make the country less corrupt and more efficient but also yield political benefits.
The other reform Modi has been unable to deliver concerns corruption and rent-seeking by government servants. The prime minister promised to enact major decisions to combat corruption in the first 100 days of his third term. Those days have come and gone, yet corruption remains rampant. Like labour reforms or indirect tax reforms, these too need a deeper dive and stronger political push. At the very least, NDA-governed states are expected to make significant strides—none of which are visible. If Modi were to hard-code measures to end corruption in the recently announced 8th Central Pay Commission, which further increases the pay, perks, and health and retirement benefits of government servants, it would not only make the country less corrupt and more efficient but also yield political benefits.
Looking Ahead
Step back, and in their own ways, all these reforms have contributed to higher GDP growth. They have made doing business easier, smoothed out bureaucratic hurdles, and provided support to wealth creators through policy actions. India still has a long way to go. But across the globe, it remains the one bright spot of growth.
While internal reforms continue, India is also working on expanding its international trade. Free trade agreements (FTA) with 50 nations, including the US, the European Union, and Eurasia, are currently being negotiated. The last to be concluded was with the United Kingdom in July 2025.
Neither economic reforms nor FTAs deliver higher GDP growth in the short term. Once reforms are activated or FTAs signed, there is a lag between private companies setting up their operations or expanding capacities, creating jobs, and delivering measurable gains. India’s 8.2 percent growth tells us that the lag period is over, and it’s time for growth to gather momentum.
Gautam Chikermane is Vice President at the Observer Research Foundation.
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