In a significant move for the Indian economy, the Reserve Bank of India (RBI) on December 8, 2025, announced a 25 basis point reduction in the repo rate, lowering it to 5.25%. This decision by the Monetary Policy Committee (MPC) reflects a strategic pivot towards supporting economic growth, driven by a combination of strong recent performance and a benign inflation environment. The rate cut was influenced by India's robust Gross Domestic Product (GDP) growth, which accelerated to a six-quarter high of 8.2% year-on-year in Q2-FY26. Furthermore, headline Consumer Price Index (CPI) inflation in October stood at a remarkably low 0.25%, providing ample policy space for monetary easing. International rating agency Fitch has also acknowledged India's positive trajectory, revising its FY26 growth forecast upwards to 7.4% from an earlier 6.9%, attributing this to strong private consumption and improved consumer sentiment. The RBI itself projects a real GDP growth of approximately 7.3% for 2025-26.
Accompanying the rate cut, the RBI also unveiled major liquidity-boosting measures, including open market operations (OMOs) worth Rs 1 lakh crore in government securities and a $5 billion Dollar-Rupee sell swap. These measures are designed to inject durable liquidity into the financial system and ensure effective transmission of the monetary policy to the real economy. This signals a notable transition in the central bank's approach, moving from primarily being an "inflation warrior" to becoming a "growth architect" under Governor Sanjay Malhotra.
Despite the optimistic outlook from official quarters and rating agencies, former RBI Governor Raghuram Rajan has offered a more cautious perspective on India's economic ascent. Speaking at the UBS Center Forum for Economic Dialogue, Rajan stated that India might require 15 to 30 years to consistently achieve an 8% growth rate and effectively catch up with global economic giants like the United States and China. He reiterated his long-standing concerns regarding the accuracy of India's reported GDP numbers, suggesting that the actual economic expansion, when "fluff" is removed, could be closer to 6-6.5% rather than the officially stated 8-8.5%. Rajan emphasized that for India to achieve developed-country status by 2047, a sustained growth rate of 9-10% is essential, pointing to persistent challenges in generating adequate quality jobs for its large young workforce and discrepancies between inflation trends and claimed growth rates.
The Indian Rupee has also been under pressure, closing weaker against the US Dollar at 90.09. This depreciation is attributed to several factors, including significant capital outflows by Foreign Institutional Investors (FIIs), a strong global dollar, and elevated US tariffs on Indian goods. FIIs have reportedly withdrawn approximately ā¹6,584 crore from Indian equities in December, contributing to the currency's weakening trend.
In the realm of international trade relations, India is actively working to enhance its economic partnerships. Following Russian President Vladimir Putin's recent visit, Russia has committed to addressing India's concerns regarding non-tariff barriers across various sectors, including pharmaceuticals, agriculture, marine products, dairy, and poultry. This initiative aims to boost Indian exports and mitigate the existing trade deficit. Additionally, India and the European Union (EU) have reviewed the progress of their Free Trade Agreement (FTA) negotiations, with Commerce and Industry Minister Piyush Goyal expressing optimism for continued cooperation towards a mutually beneficial agreement.
On a state level, Andhra Pradesh has demonstrated remarkable economic growth, significantly outperforming the national average. The state's Gross State Domestic Product (GSDP) grew by 11.2% in Q2-FY26 and 10.9% in H1-FY26, compared to the national averages of 8.7% and 8.8% respectively. The industrial sector in Andhra Pradesh recorded an impressive growth of 12.2% in Q2-FY26.
In other business news, major corporate developments include Adani Enterprises' plan to raise Rs 25,000 crore through a rights issue. Infrastructure giant Larsen & Toubro announced the transfer of its realty business to its subsidiary, L&T Realty Properties Ltd. Concerns over disruptions in the aviation sector led to the Directorate General of Civil Aviation (DGCA) issuing a show-cause notice to IndiGo, with the airline facing scrutiny over flight cancellations. Furthermore, leading e-commerce and food delivery platforms such as Amazon, Flipkart, Swiggy, and Zomato have committed to contributing to a welfare fund for gig workers. Maruti Suzuki India also announced a recall of 39,506 units of its Grand Vitara model.