India's economy is projected to grow at 7% in 2025, making it a leader in growth among emerging markets, according to a recent report by Moody's Ratings. This robust growth is expected to continue, albeit at a slightly moderated pace of 6.4% in 2026.
Moody's noted that India's economic resilience is underpinned by strong domestic growth drivers, allowing it to weather global uncertainties. The agency's 2026 outlook for companies in the Asia-Pacific region, excluding Greater China, highlights India's leading position in economic expansion. While the Indian Rupee has weakened against the dollar, most rated companies possess active currency risk management strategies or strong financial buffers. Investment-grade entities have also demonstrated access to international capital markets.
Several factors contribute to this optimistic outlook. Strong domestic demand, fueled by rising incomes and an expanding middle class, is a key driver. Government-led infrastructure spending on roads, railways, and urban development also provides a solid foundation for growth. Furthermore, India's increasing export diversification, with sectors like electronics and pharmaceuticals expanding into new markets, enhances economic resilience. Stable macroeconomic indicators, including a manageable fiscal deficit, controlled inflation, and healthy foreign exchange reserves, also bolster investor confidence.
However, some challenges and uncertainties remain. Geopolitical tensions, particularly those between India and Pakistan, could potentially dampen economic momentum. A rise in global policy uncertainty and intensifying trade restrictions could also pose headwinds. Recently, Moody's had lowered India's GDP growth forecast for 2025 to 6.3% from an earlier projection of 6.5%, citing increasing global policy uncertainty and trade restrictions. Furthermore, concerns exist regarding the impact of US tariff hikes on Indian companies. A 50% duty levied by the US on Indian shipments could affect companies through trade, weakening macroeconomic conditions, and financial markets.
Despite these challenges, the Reserve Bank of India (RBI) is expected to play a supportive role by potentially lowering interest rates to stimulate growth, especially as external risks persist. The RBI has projected a 6.5% GDP growth for India in 2025-26, while acknowledging global trade and policy uncertainties. However, Moody's has also pointed out that tax cuts have reduced government revenue, potentially limiting fiscal policy support for the economy. Net tax revenue at the end of September stood at over Rs 12.29 lakh crore, compared to Rs 12.65 lakh crore in the same period last year.
In conclusion, while some factors could moderate the pace, India is projected to maintain strong economic growth in 2025, driven by domestic demand, infrastructure investments, and export diversification. This makes India a leading force in emerging markets and a significant contributor to overall growth in the Asia-Pacific region.
