India’s economic story as of Tuesday, 9 December 2025, is being written on three fronts at once: break‑neck growth, record‑low inflation, and a central bank that has just cut rates while warning about global risks. All of this is playing out against choppy equity markets, simmering trade tensions with the United States, and fresh signals from housing, defence and energy sectors.
Headline picture: fast growth, soft prices, cautious markets
- Growth: India’s GDP grew 8.2% year‑on‑year in the July–September quarter of FY26, its fastest pace in six quarters and well above earlier forecasts around 7.3%. [1]
- RBI forecast: On 5 December, the Reserve Bank of India (RBI) raised its FY26 growth forecast to 7.3% from 6.8%, citing stronger‑than‑expected momentum and tax/energy tailwinds. [2]
- Inflation: Consumer inflation has plunged to historic lows – around 0.25–0.3% year‑on‑year in October, with a Reuters poll pointing to only about 0.7% in November, still far below the RBI’s 4% target. [3]
- Policy: The RBI has cut the repo rate by 25 basis points to 5.25%, announced ₹1 lakh crore of government bond purchases and a $5 billion, three‑year USD/INR swap, signalling a powerful liquidity push. [4]
- Markets: After a sharp sell‑off on Monday, benchmark indices slipped again in early trade on Tuesday, with the Nifty 50 and Sensex down about 0.6% intraday, before recovering toward the 85,000/25,900 zone by mid‑session. [5]
Put simply: India is running hot on growth, unusually cool on inflation, and cautiously loose on monetary policy just as global uncertainties – from U.S. tariffs to the Federal Reserve’s next move – darken the external backdrop.
Growth story: 8.2% GDP and upgraded forecasts
The latest national accounts data show India’s economy expanding 8.2% year‑on‑year in Q2 FY26 (July–September 2025), up from 7.8% in the previous quarter and 5.6% a year earlier. [6]
Government and private analyses attribute the surge to:
- Festive‑season demand and GST cuts supporting consumption of goods and durables. [7]
- Robust manufacturing and investment, helped by lower input costs and heavy public capital expenditure. [8]
- A favourable GDP deflator (very low inflation in nominal terms), which mechanically boosts real growth figures. [9]
On the back of this, the RBI’s Monetary Policy Committee (MPC) now projects 7.3% GDP growth in FY26, with quarterly growth of 7.0% in Q3, 6.5% in Q4 and 6.7% in Q1 FY27, still above 6.5% beyond that. [10]
Medium‑term forecasts from global and domestic forecasters remain bullish:
- EY’s Economy Watch expects real GDP growth above 6% every year from FY26 to FY31, with 6.6% in FY26and 6.2% in FY27. [11]
- Trading Economics projections put India’s GDP around $4.2 trillion by end‑2025, cementing its status as one of the fastest‑growing large economies. [12]
- The IMF’s World Economic Outlook has India on track to become the world’s 4th‑largest economy by FY26, overtaking Japan. [13]
Finance Minister Nirmala Sitharaman reiterated over the weekend that growth this year should be “7% or beyond”, pointing to resilient consumption, GST rate cuts and reform momentum despite higher U.S. tariffs and a weaker rupee. [14]
Inflation: a record low now, but base effects are turning
If growth looks like 2010s‑era India, inflation looks like something entirely new.
Official data show headline CPI inflation at roughly 0.25–0.3% in October 2025, the lowest in the current CPI series and far below even the bottom of the RBI’s 2–6% target band. [15]
Wholesale prices are even softer: WPI inflation fell to –1.21% year‑on‑year in October, from +0.13% in September, driven by cheaper food, energy and metals. [16]
A Reuters poll of economists now expects:
- November CPI around 0.7% (median), up from 0.25% in October but still near record lows.
- WPI at –0.6% in November, suggesting ongoing disinflation at the wholesale level. [17]
The drivers:
- Food prices – especially vegetables – have been unusually benign thanks to successive good crop cycles and limited weather shocks. [18]
- Multiple GST rate cuts have reduced effective tax incidence on many consumption items. [19]
- Weak pricing power in parts of manufacturing and trade, as competition and global softness limit mark‑ups. [20]
However, analysts are clear this phase is largely base‑effect driven: several houses, including ICRA and EY, expect CPI to climb back above 1% in November and gradually approach 4% by early FY27 as the low base rolls off. [21]
The RBI has nonetheless slashed its own forecast:
- FY26 CPI projection cut to 2.0% from 2.6%, with very low prints (near or below 1%) expected in the current quarter before a gradual normalisation. [22]
RBI’s December policy: from “goldilocks” to “liquidity for resilience”
On 5 December, the RBI delivered a 25 bps repo rate cut to 5.25%, unanimously approved by the MPC while retaining a neutral stance. [23]
What made this meeting stand out was the combination of rate action, liquidity strategy and communication:
- The central bank announced ₹1 trillion (₹1 lakh crore) of open‑market purchases of government bonds in December, split across two auctions. [24]
- It also unveiled a $5 billion, three‑year USD/INR buy‑sell swap, a tool that injects durable rupee liquidity while managing FX market volatility. [25]
- RBI Governor Sanjay Malhotra described the macro backdrop as a “rare Goldilocks period” of high growth and exceptionally low inflation, arguing that this gives room to support growth without jeopardising stability. [26]
Independent research has dubbed this the start of a “lower‑for‑longer” and “liquidity‑for‑resilience” regime:
- Fisdom Research highlights that the combined OMOs and FX swap could add around ₹1.45 trillion of durable liquidity, flattening the yield curve and pulling short‑term market rates closer to the policy rate. [27]
- A widely discussed op‑ed in ThePrint frames the move as the first step in a “Liquidity‑for‑Resilience Cycle”, in which the RBI pre‑emptively builds buffers so that India can weather future global shocks without aggressive emergency easing later. [28]
- The Statesman notes that by cutting rates while maintaining a neutral stance and slashing inflation forecasts, the RBI is “leaning a little more towards growth without abandoning caution”. [29]
Taken together, the message is that headline rates might not fall much further, but liquidity conditions are likely to remain easy, supporting credit growth and asset prices as long as inflation stays subdued.
Markets today: equities choppy, rupee stabilising, bonds supported
Equities
Tuesday’s trading session has been volatile:
- A Reuters market report notes that the Nifty 50 and BSE Sensex fell about 0.6% in morning trade, extending Monday’s sharp sell‑off, as investors fretted about stalled U.S.–India trade negotiations and awaited the U.S. Federal Reserve’s decision. [30]
- Losses were broad‑based, with 15 of 16 sectoral indices in the red at one point; small‑caps and mid‑caps slipped around 0.5%. Foreign portfolio investors have sold roughly $1.3 billion of equities in the first six sessions of December, triple November’s outflows. [31]
- By early afternoon, however, an ET Now live blog showed the Sensex trading around 85,000, up about 450 points from the day’s low, and the Nifty above 25,900, suggesting dip‑buying and domestic institutional support. [32]
Rate‑sensitive pockets such as financials and real estate continue to digest the RBI’s dovish turn, with analysts noting that the full impact of lower funding costs will play out over several quarters. [33]
Rupee and reserves
On the currency side, India’s foreign exchange reserves have climbed to about $686 billion, giving roughly 11 months of import cover – a key buffer at a time of global volatility. [34]
The rupee:
- Recently weakened past ₹90 per dollar for the first time before recovering to the high‑₹89 handle. [35]
- Firmed after the MPC meeting and the liquidity announcements, helped by softer oil prices (Brent around $63/bbl) and the stronger growth narrative. [36]
Crucially, the RBI has stressed that it does not target a specific rupee level, and that FX moves will not automatically drive rate decisions – a deliberate decoupling that brings India closer to inflation‑targeting practice in advanced economies. [37]
Bonds
Government bond yields have edged lower following the policy:
- The 10‑year benchmark yield slipped toward 6.47%, aided by the planned OMOs and the sharp downgrade in inflation projections. [38]
- Strategists expect flattening of the yield curve, with 3–7 year maturities likely to benefit the most as liquidity is pushed into that segment. [39]
Housing: steady 6% price gains, luxury boom near its peak
A Reuters poll of 15 property analysts released today points to a steady 6% annual rise in Indian home prices over the next two years, but warns that the current luxury‑housing boom may lose steam within five years. [40]
Key takeaways:
- Prices have more than doubled over the past decade, and the latest poll sees:
- Delhi‑NCR: 7–8% price growth this year, ~7% next year
- Bengaluru: around 7%
- Mumbai: about 5% [41]
- In Q3, unit sales in the top seven cities fell 9% but developer revenues rose 14%, underlining a shift towards fewer, more expensive homes. [42]
- India faces a shortage of ~10 million affordable homes, with that gap projected to triple by 2030 if supply doesn’t accelerate. [43]
The RBI’s cumulative 125 bps of rate cuts this year, taking the repo rate to 5.25%, should slowly filter into lower home‑loan EMIs, modestly improving affordability. But analysts caution that surging land and construction costs are offsetting the benefit of cheaper credit, especially in premium markets. [44]
Sector snapshots: defence, aviation, energy and infrastructure
Defence and strategic infrastructure
India’s push for self‑reliance in defence is showing up in hard numbers:
- Defence production has jumped from around ₹46,000 crore in 2014 to a record ₹1.51 lakh crore, while annual defence exports have climbed to nearly ₹24,000 crore, according to remarks by Defence Minister Rajnath Singh. [45]
- The Border Roads Organisation (BRO) has just inaugurated 125 infrastructure projects – including roads and bridges across Ladakh, Jammu & Kashmir and other border states – worth about ₹5,000 crore. [46]
This build‑out not only strengthens security but also improves connectivity and logistics in some of the country’s toughest terrain, with spill‑over benefits for trade, tourism and regional growth.
Aviation: IndiGo turbulence
The aviation sector remains in focus after days of flight disruptions:
- India’s regulator DGCA has ordered IndiGo to trim its schedule by 5%, after widespread cancellations linked to pilot rostering and fatigue rules. [47]
- The airline’s share price has fallen roughly 17% since 1 December, reflecting worries about costs, regulatory scrutiny and reputational damage at a time when air travel is otherwise structurally growing. [48]
While this is a company‑specific issue, extended disruption could have knock‑on effects on business travel, tourism and regional connectivity, especially if other carriers struggle to absorb stranded passengers.
Energy: IOC’s LNG tender
On the energy front, Indian Oil Corporation (IOC) has issued a tender for a liquefied natural gas (LNG) cargo for delivery around 20 January 2026, likely to Dahej terminal, according to industry sources cited by Reuters. [49]
The move:
- Helps secure supplies during the winter demand period.
- Highlights India’s growing reliance on LNG imports to balance domestic gas production and rising industrial, power and city‑gas consumption.
Port‑led infrastructure: Sagarmala momentum
A fresh article on the Sagarmala Project – the government’s flagship port‑led development programme – underscores its scale:
- Since launch in 2015, over 1,500 projects have been completed, with thousands more identified across coastal states. [50]
- The initiative aims to cut logistics costs by modernising ports, upgrading connectivity and promoting port‑linked industrial clusters. [51]
Combined with BRO projects and defence manufacturing, this infrastructure push is an important supply‑side counterpart to the current consumption‑driven growth spurt.
External headwinds: U.S. tariffs, trade talks and global rates
Despite the upbeat domestic data, policymakers are watching global risks closely.
U.S.–India trade tensions
Two U.S. delegations are in New Delhi this week for high‑level talks aimed at “resetting” ties, even as a comprehensive trade deal remains out of reach. [52]
Key points:
- The U.S. has slapped steep tariffs – up to 50% on some Indian exports – including a 25% penalty linked to India’s purchases of Russian oil. [53]
- President Trump has also signalled possible additional tariffs on Indian rice, which is already rattling rice exporters on Dalal Street. [54]
- While both sides talk up the broader strategic partnership, officials in Delhi do not expect an imminent trade breakthrough, and analysts see “bumps in the road” persisting. [55]
Markets have reacted: rice exporters and some trade‑sensitive stocks underperformed in Tuesday’s session, and foreign portfolio outflows have accelerated as global investors reassess emerging‑market risk under a more protectionist U.S. stance. [56]
Federal Reserve and global rates
Investors are also bracing for the U.S. Federal Reserve’s decision this week, with Wall Street banks now pencilling in fewer rate cuts in 2026 than previously expected. [57]
A more cautious Fed:
- Can keep global financial conditions tight, supporting the dollar and weighing on risk assets.
- Limits how far and how fast India can diverge with domestic easing without inviting pressure on the rupee and capital flows.
This backdrop helps explain the RBI’s neutral stance despite ultra‑low inflation and why its communication emphasises prudence and data dependence rather than an open‑ended easing cycle. [58]
What it means for households and businesses
For borrowers and consumers
- Lower EMIs: With the repo rate at 5.25%, banks are expected to gradually pass on cuts to home, auto and business loans, improving cash flows for households and small firms. [59]
- Cheap inflation environment: Very low inflation boosts real incomes, especially for lower‑ and middle‑income households, though farmers and producers selling into weak price environments may feel margin pressure. [60]
For companies and investors
- Financing conditions are turning more supportive: surplus liquidity and lower yields should reduce funding costs for banks, NBFCs and corporates, particularly in the short‑ to medium‑term debt segment. [61]
- Rate‑sensitive sectors – housing, autos, capex‑heavy industries – stand to benefit if demand remains strong and policy stays supportive, though valuations and external shocks remain key risks. [62]
- Exporters may gain from a slightly weaker rupee and supportive global demand in select niches, but face uncertainty from U.S. tariffs and potential non‑tariff barriers. [63]
This article is for information purposes only and should not be treated as investment or trading advice.
Key data and dates to watch next
Looking ahead, several releases and events will shape the next leg of the India‑economy narrative:
- November CPI (12 December 2025): Expected to show inflation edging up from October’s record low but still under 1%. [64]
- November WPI (mid‑December): To confirm whether wholesale deflation is easing or deepening. [65]
- RBI’s December OMOs and FX swap operations: How aggressively they are used, and their effect on bond yields and interbank rates. [66]
- Outcome of U.S.–India trade talks (10–11 December meetings): Any signals on tariff relief or escalation will be closely watched by exporters and markets. [67]
For now, India enters the end of 2025 with rarely seen macro tailwinds: strong growth, ultra‑low inflation and a central bank that is easing from a position of strength – even as markets remain acutely aware that global winds can change quickly.
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