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December 07, 2025 India Unveils Key Economic and Social Policy Reforms: RBI Cuts Repo Rate, Pension and Gratuity Rules Revised, and New Initiatives for Youth and Cooperative Sector

In a series of significant announcements over the past 24-48 hours, India has introduced major policy changes and schemes aimed at bolstering economic growth, enhancing social welfare, and promoting specific sectors. The Reserve Bank of India (RBI) reduced the repo rate to 5.25% amidst strong economic performance and low inflation. Simultaneously, the government approved a substantial hike in the minimum pension under the EPS-95 scheme and revised gratuity rules to benefit a wider range of workers. New initiatives were also launched for youth employment and skill development, as well as for strengthening the cooperative sector and boosting exports.

India has witnessed a flurry of policy and scheme announcements in the last 24-48 hours, signaling the government's proactive approach to economic management and social upliftment. These developments are crucial for students preparing for competitive exams, covering key areas such as economics, social welfare, and governance.

RBI Cuts Repo Rate Amidst "Goldilocks Period"

In a major economic development, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) unanimously decided on Friday, December 5, 2025, to reduce the policy repo rate by 25 basis points, bringing it down to 5.25% with immediate effect. This decision was attributed to India's robust economic growth, with real Gross Domestic Product (GDP) accelerating to 8.2% in the second quarter of FY26, and historically low inflation, which stood at 1.7% in Q2 FY26 and further dipped to 0.3% in October 2025. RBI Governor Sanjay Malhotra characterized the current macroeconomic situation as a "rare goldilocks period" marked by high growth and exceptionally low inflation. The RBI also revised its GDP growth projection for FY26 upwards to 7.3% from an earlier 6.8% and lowered the CPI inflation forecast to 2%. The MPC maintained a "neutral" policy stance. To ensure adequate liquidity, the RBI announced measures including Open Market Operations (OMO) purchases of government securities and USD/INR buy-sell swaps.

Major Boost to Social Security: EPS-95 Pension Hike and Revised Gratuity Rules

In a significant move to enhance financial security for retirees, the government approved a substantial increase in the minimum pension under the Employees' Pension Scheme (EPS-95). In December 2025, the minimum pension was raised from the previous ā‚¹1,000 per month to ā‚¹7,500, addressing a long-standing demand from pensioners and aiming to provide dignity and stability to crores of retired employees struggling with rising expenses.

Further strengthening labor welfare, new Gratuity Rules came into effect on November 21, 2025. These revised rules significantly expand coverage to include contract staff, fixed-term employees, and gig workers, making them eligible for gratuity after just one year of continuous service. Employers are now mandated to make gratuity payments within 30 days, with a penalty of 10% annual interest for any delays.

New Initiatives for Youth, Exports, and Cooperative Sector

Union Finance Minister Nirmala Sitharaman unveiled a comprehensive ā‚¹2 lakh crore package for the youth, focusing on employment, education, and skill development. This package includes Employment Linked Incentives, a plan to skill 20 lakh youth, upgrade 1,000 Industrial Training Institutes (ITIs), and provide internship opportunities for one crore youth.

To bolster India's position in global trade, the Union Cabinet approved the Export Promotion Mission (EPM) in November 2025, with an outlay of ā‚¹25,060 crore for FY 2025ā€“26 to FY 2030ā€“31. This mission aims to streamline various export schemes into a unified, outcome-based framework, including support for inland transport, warehousing, and an expanded Credit Guarantee Scheme for Exporters.

Union Home and Cooperation Minister Amit Shah announced several new initiatives to strengthen the cooperative sector. These include Sahakar Sarthi, Sahakar Setu, Abhiyan Sathi, and PACS Sathi, all designed to reinforce the rural banking system. Shah also outlined plans for future projects like Cooperative Taxi, Cooperative Insurance, and promoting "Cooperation Among Cooperatives."

State-Level Policy Developments

Bihar Chief Minister Nitish Kumar announced a new five-year industrial policy targeting ā‚¹50 lakh crore in investments. This policy focuses on boosting industrialization, employment generation, and improving the ease of doing business, with plans for a defence corridor, tech hubs, and MSME parks.

In Uttar Pradesh, Chief Minister Yogi Adityanath committed to ensuring minimum honorarium payments for Class IV, contract, and sanitation workers. He also highlighted efforts to accelerate the Zero Poverty Mission, aiming to provide housing and Ayushman health coverage to all deprived families in the state.

Karnataka Chief Minister Siddaramaiah reiterated that the state's Congress government implemented its guarantee schemes to ensure social equality and economically empower its citizens.

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