By Ramachandran Rajeev Kumar — 2026-01-01
India 2025: The Year That Tested a Rising Power
From economic milestones to military confrontation, 2025 revealed India's strengths and exposed its vulnerabilities
As the calendar turns to 2026, India stands at an inflection point. The year 2025 delivered extraordinary highs - becoming the world's fourth-largest economy, demonstrating military resolve in Operation Sindoor, and consolidating political dominance through landslide electoral victories. It also brought sobering challenges - punitive American tariffs, extreme climate events, and the rupee's slide toward 90 against the dollar.
This was the year India's rise was tested. And for the most part, India passed.
The Economy: Fourth and Rising
The Japan Milestone
In mid-2025, India officially surpassed Japan to become the world's fourth-largest economy by nominal GDP. With a GDP of $4.19 trillion against Japan's $4.18 trillion, this was not merely a statistical achievement but a psychological breakthrough.
For a nation that gained independence in poverty and was once dismissed as a "basket case," overtaking the world's former second-largest economy marked the fruition of decades of reforms, demographic dividend, and liberalization.
Growth Performance
| Metric | Value |
|---|---|
| Real GDP Growth (Q2 FY25-26) | 8.2% (six-quarter high) |
| RBI FY25-26 Forecast | 7.3% |
| Manufacturing Growth | 9.1% |
| Services Growth | 9.3% |
| Private Consumption Growth | 7.0% |
India continued to outperform global averages (2.8%) and major economies including China (projected 4.0%) and the United States (1.8%).
Inflation Victory
Perhaps the most underappreciated achievement of 2025 was the taming of inflation:
| Period | CPI Inflation |
|---|---|
| January 2025 | 4.26% |
| May 2025 | 2.82% (lowest since Feb 2019) |
| November 2025 | 0.71% |
| Food Inflation (October) | -5.02% (deflation) |
GST rationalization, improved supply chains, and favorable monsoons contributed to price stability that put money back in consumers' pockets.
Capital Markets
| Index | 2024 Close | 2025 Close | Change |
|---|---|---|---|
| BSE Sensex | ~78,139 | 85,034 | +8.8% |
| Nifty 50 | - | ~26,000 | 10th consecutive positive year |
Domestic institutional investors (DIIs) provided crucial support during FII outflow periods, deploying approximately Rs 3,700 crore daily during volatile stretches. This demonstrated the maturation of India's savings and investment ecosystem.
Foreign Investment
- FDI Inflows: $81.04 billion in FY 2024-25 (+14% YoY)
- Top Sectors: Services (19%), Computer Software/Hardware (16%)
- Top Sources: Singapore (30%), Mauritius, United States
- Forex Reserves: $697.9 billion (11 months import cover)
Notably, Russian equity inflows surged 3x to $18.45 million - a small but symbolic indicator of deepening economic ties.
Politics: The BJP Juggernaut
Delhi Elections (February 2025)
The Bharatiya Janata Party captured 48 of 70 seats in the Delhi Legislative Assembly, ending 27 years of Congress and AAP rule in the national capital. Rekha Gupta became Chief Minister.
The result was a political earthquake. AAP, which had governed Delhi since 2013, was reduced to single digits. Congress failed to register meaningful presence.
Bihar Elections (November 2025)
The NDA alliance secured 202 of 243 seats, with Nitish Kumar returning for an unprecedented 10th term as Chief Minister. The opposition Mahagathbandhan collapsed to just 35 seats.
Major Legislation
VB-GRAM-G Act 2025: Replaced the iconic MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) with the Viksit Bharat Gramin Awas-Rozgar Guarantee scheme. Key changes:
- Employment guarantee increased from 100 to 125 days
- Funding pattern shifted to 60:40 (Centre:State)
- Controversy: Removal of Mahatma Gandhi's name from the scheme title
New Income Tax Act 2025: Replaced the 64-year-old Income Tax Act of 1961
- Sections reduced from 819 to 536
- Introduced "Tax Year" concept replacing Assessment/Previous Year terminology
- Explicit framework for Virtual Digital Assets (VDAs) taxation
- Effective from April 1, 2026
One Nation One Election: The Constitution (129th Amendment) Bill was introduced in December 2025. A Joint Parliamentary Committee's tenure was extended to Budget Session 2026. The bill was not passed in 2025 but remains on the legislative agenda.
Foreign Policy: Navigating the Storm
The US-India Crisis
The Trump 2.0 administration imposed sweeping tariffs that transformed the bilateral relationship:
| Date | Action |
|---|---|
| April 2, 2025 | "Liberation Day" - 10% baseline tariffs |
| July 30, 2025 | 25% tariff + 25% "Russia oil penalty" |
| Total burden | ~50% on Indian exports |
Indian exports to the US, worth $86.5 billion in 2024, are projected to fall to approximately $50 billion in 2026. Textiles, gems, jewelry, and shrimp face 70% collapse projections.
Yet strategic cooperation continued - the 10-year Defense Framework Agreement was renewed in October 2025, and MQ-9B SkyGuardian drone deliveries proceeded.
The China Thaw
After four years of military standoff following the 2020 Galwan clash, India-China relations showed unexpected improvement:
- October 2024: Patrolling agreement at Depsang Plains and Demchok
- August 2025: Foreign Minister Wang Yi visited Delhi; direct flights resumed
- August 2025: Modi-Xi meeting at SCO Summit, Tianjin - termed each other "development partners"
- 2026: Kailash Mansarovar Yatra confirmed
The drivers: mutual economic constraints and shared challenge from Trump's tariffs created unexpected common ground.
The Russia Partnership
Putin's visit to New Delhi in December 2025 - the 23rd annual summit - reaffirmed the partnership:
- 29 agreements signed
- Focus on diversifying beyond energy and defense
- Labor mobility and shipbuilding agreements
- "Sudarshan Chakra" air defense integration mission
Russian oil now comprises 38% of India's crude imports - up from 2% pre-war. The partnership signal to the West: India will not isolate Moscow.
Global South Leadership
India cemented its position as the voice of the Global South:
- G20 Johannesburg: Positioned as consensus builder amid US-EU tensions
- BRICS 2026 Presidency: Modi proposed redefining BRICS as "Building Resilience and Innovation for Cooperation and Sustainability"
- Voice of Global South Summit: 120+ countries participating
- Five-Nation Tour: Ghana, Trinidad and Tobago, Argentina, Brazil, Namibia
At the Ethiopian Parliament, Modi declared: "The Global South is writing its own destiny."
Defense & Security: Operation Sindoor
The Pahalgam Attack
On April 22, 2025, terrorists killed 26 civilians in Pahalgam, Kashmir. The attack was attributed to The Resistance Front (TRF), a proxy of Lashkar-e-Taiba.
India's Response
On May 7, 2025, India launched Operation Sindoor - precision strikes on nine terrorist infrastructure sites in Pakistan-occupied Kashmir and Pakistani territory.
This was the most significant India-Pakistan military exchange since the Balakot strikes of 2019.
Historic Firsts
- S-400 Combat Debut: India's Russian-made air defense systems achieved their first combat use globally
- Record Intercept: Reports indicate an S-400 battery intercepted a Pakistani AEW&C aircraft at approximately 300 km range - the most significant surface-to-air engagement in decades
Escalation and De-escalation
| Date | Event |
|---|---|
| May 7 | Indian precision strikes |
| May 7-10 | Pakistani retaliation; drone-on-drone battles |
| May 10 | Ceasefire via DGMO hotline |
The operation established a new deterrence threshold. Post-conflict, India began negotiating for additional S-400 systems and exploring Su-57 fifth-generation fighters.
Other Defense Developments
- Contracts signed: Rs 39,125 crore
- MQ-9B SkyGuardian drones: 31 units from US
- BRO Projects: 125 projects worth Rs 5,000 crore
- Shyok Tunnel: Strategic connectivity to Ladakh completed
Technology & Innovation
IndiaAI Mission
India emerged as the world's third most AI-competitive nation (Stanford ranking) through aggressive investment:
| Initiative | Detail |
|---|---|
| Budget | Rs 10,300+ crore |
| GPUs Deployed | 38,000 (from initial target of 10,000) |
| "BharatGen" | Multilingual foundational models launched |
| "AIKosh" | National datasets initiative |
ISRO Achievements
| Program | Status |
|---|---|
| Chandrayaan-4 | Design phase completed (launch 2027-28) |
| Gaganyaan | Uncrewed tests scheduled; manned launch 2027 |
| NGLV "Soorya" | Next-gen reusable launch vehicle progressing |
Digital India (10th Anniversary - July 1, 2025)
| Metric | Value |
|---|---|
| Internet Connections | 96.96 crore |
| UPI Global Share | 49% of real-time payments |
| Digital Economy GDP Contribution | 13.42% (FY 2024-25) |
Infrastructure Milestones
Navi Mumbai International Airport
On December 25, 2025, India's newest international airport commenced operations:
- Developed by Adani Group
- Target capacity: 90 million passengers annually
- Designed to ease pressure on Mumbai's constrained Chhatrapati Shivaji airport
Mumbai Metro Aqua Line 3
The fully underground Colaba-SEEPZ corridor became operational in October 2025, transforming Mumbai's north-south connectivity.
Strategic Infrastructure
- Delhi-Mumbai Expressway key sections operationalized
- Ganga Expressway sections opened
- Enhanced border infrastructure in Ladakh
The Challenges
Economic Headwinds
- Rupee depreciation: Touched ~90/USD by year-end
- Trump tariffs: Threatening IT, pharma, textiles sectors
- K-shaped recovery: Debates on inequality and quality of employment
Environmental Crisis
2025 was one of the hottest years on record:
- Extreme weather events on 99% of days
- Delhi heatwaves reaching 46°C
- Severe Kerala floods
- Urgent need for climate adaptation strategies
Social Tensions
- Pahalgam attack revived J&K security anxieties
- Centre-State tensions over VB-GRAM-G funding patterns
- One Nation One Election federalism debates
The Balance Sheet
Achievements
| Category | Key Wins |
|---|---|
| Economy | 4th largest GDP, 8.2% growth, inflation tamed |
| Politics | BJP landslides in Delhi and Bihar |
| Foreign Policy | Global South leadership, China thaw, Russia partnership |
| Defense | Operation Sindoor success, S-400 validated |
| Technology | AI leadership, ISRO progress |
| Infrastructure | New airport, metro lines, highways |
Setbacks
| Category | Key Challenges |
|---|---|
| Trade | 50% US tariffs, export collapse projections |
| Currency | Rupee at ~90/USD |
| Security | Pahalgam attack, continued terror threat |
| Climate | Extreme weather, infrastructure vulnerability |
| Geopolitics | Damaged US trust, uncertain trade outlook |
Outlook for 2026
The IMF projects India's GDP growth at 6.6% in FY2025/26 under baseline assumptions of prolonged 50% US tariffs, moderating to 6.2% in FY2026/27.
India enters 2026 with:
- Strengths: Robust domestic demand, young demographics, digital infrastructure, manufacturing momentum
- Challenges: External trade headwinds, currency pressure, climate adaptation needs
- Opportunities: BRICS presidency, continued Global South leadership, AMCA development, AI/tech buildout
The fundamental trajectory remains positive. India is rising. The question is no longer whether India will become a great power, but what kind of great power it will choose to be.
Conclusion
2025 was the year India's ambitions met reality - and reality, for the most part, cooperated.
The nation absorbed punitive American tariffs without capitulating. It demonstrated military resolve without escalating to catastrophe. It maintained strategic partnerships in all directions while positioning itself as the voice of the developing world.
Not every challenge was met. The environmental crisis demands more urgent action. The rupee's slide reflects structural vulnerabilities. The trade damage will take years to repair.
But the overall picture is clear: India is no longer a rising power. It is a risen power, still rising.
The world took notice in 2025. It will pay even closer attention in 2026.
The author is Founder & Editor-in-Chief of BarathVector.