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October 22, 2025 Indian Economy Shows Resilience Amid Global Headwinds, Driven by Domestic Demand and Robust Services Exports

The Indian economy continues to demonstrate strong resilience despite global uncertainties, as highlighted by the Reserve Bank of India (RBI) in its latest bulletin. Key indicators point to robust domestic demand, moderating inflation, and upward revisions in growth forecasts by international bodies. While facing challenges such as US tariffs and a potential rise in fertilizer prices due to Chinese export suspensions, India's strategy of export diversification and a booming services sector are driving economic growth. The Diwali festive season also witnessed an unprecedented surge in retail, reflecting widespread consumer optimism. Concerns, however, have been raised regarding the stability of the SME IPO market.

Indian Economy Exhibits Strong Resilience Amidst Global Uncertainties

The Reserve Bank of India (RBI) has underscored the Indian economy's continued resilience amidst broader global uncertainty and weak external demand. According to its October Bulletin, the economy is driven by strong and durable macroeconomic fundamentals, including low inflation, robust balance sheets of banks and corporates, adequate foreign exchange reserves, and a credible monetary and fiscal framework. High-frequency indicators signal a revival in urban demand and robust rural demand.

Headline consumer price index (CPI) inflation moderated sharply in September, reaching its lowest reading since June 2017. This moderation has provided greater leeway for monetary policy to support growth without compromising price stability, as noted by RBI Governor Sanjay Malhotra.

International agencies have also revised India's growth projections upwards. The International Monetary Fund (IMF) increased India's GDP growth forecast for 2025 by 20 basis points to 6.6%, while the Organisation for Economic Co-operation and Development (OECD) revised its 2025 projections upwards by 40 basis points to 6.7%. The RBI itself raised its forecast for India's economic growth to 6.8% for the current year. Domestic structural reforms are contributing to offsetting the drag from weakening external demand conditions.

Concerns in the SME IPO Market and Regulatory Measures

While the broader economic outlook remains positive, the RBI bulletin highlighted a concerning trend in India's Small and Medium Enterprise (SME) Initial Public Offering (IPO) market. It noted that sharp listing gains are often followed by negative returns within a short period, especially for IPOs that attract strong interest from retail investors. The Securities and Exchange Board of India (SEBI) has initiated regulatory measures to restore stability in this segment, prompted by the inability of many SMEs to sustain positive returns post-listing and signs of overvaluation in some stocks.

Services Exports Emerge as a Key Economic Driver

India has rapidly become a global leader in services exports, now ranking seventh worldwide. This surge is primarily fueled by the technology sector and the exponential growth of Global Capability Centres (GCCs). Technology exports alone surpassed $200 billion in fiscal year 2025, contributing significantly to India's position as the seventh-largest global services exporter with a 4.3% global market share. The services segment, including telecom, IT, and business services, accounts for nearly three-quarters of total services exports, with Information Technology contributing approximately 7.5% of India's GDP. India hosts the world's largest GCC ecosystem, with around 1,850 active centres employing over 2 million professionals, a number projected to grow sharply.

Impact of US Tariffs and Export Diversification Strategy

India's exports to the US have seen a significant decline of 37.5% following the imposition of tariffs on most Indian goods, with shipments falling from USD 8.8 billion in May 2025 to USD 5.5 billion in September 2025. Despite these punitive tariffs, India is implementing a strategy to diversify its export markets and strike trade deals with various countries, which is beginning to show results. Exports recorded approximately 9% year-on-year growth in Q2FY26, compared to a 7% decline in the previous year. Electronic exports and marine product exports, in particular, showed robust growth, reflecting successful diversification of export destinations.

Diwali Sparks Unprecedented Retail Surge

The Diwali 2025 festive season witnessed an unprecedented economic surge in Indian retail, setting new records. Rural and semi-urban regions contributed nearly 28% of total sales, indicating an inclusive and pan-Indian growth wave. Both the Trader Confidence Index and the Consumer Confidence Index rose, reflecting widespread optimism about the future of India's retail economy. In the stock market, the BSE Sensex and Nifty50 closed with modest gains during the special one-hour Diwali Muhurat trading session.

Other Key Developments

  • Fertilizer Price Hike: India faces a potential increase in specialty fertilizer prices as China has suspended exports of urea and specialty fertilizers since October 15, 2025. India imports about 95% of its specialty fertilizers from China.

  • AI Investments: India has surpassed $20 billion in cumulative and new investment commitments in Artificial Intelligence.

  • Automobile Exports: India-made cars are finding significant success in exports, even as the domestic market counts on government GST cuts for volume growth.

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