India-Oman Free Trade Agreement Set for Swift Implementation

India and Oman are pushing for the swift operationalization of their recently signed free trade agreement, aiming to implement it within the next three months. This Comprehensive Economic Partnership Agreement (CEPA), signed on December 18, offers significant benefits, including zero-duty access for over 98% of Oman's tariff lines for Indian exports, covering 99.38% of India's goods shipped to the Gulf nation. Major labour-intensive sectors such as gems and jewellery, textiles, leather, pharmaceuticals, and automobiles are expected to benefit from nil duties. Furthermore, the pact allows Indian firms investing in Oman to employ 100% Indian staff, a first-of-its-kind provision designed to boost Indian employment and investment in sectors like steel, energy, education, and healthcare.

Direct Tax Collections Register Robust 8% Growth

India's net direct tax collections have shown strong performance, rising 8% to ₹17.05 lakh crore by December 17 in the current financial year. This growth is primarily attributed to a double-digit increase in corporate tax payments and a reduction in refunds compared to the previous year. While these figures indicate robust corporate performance, experts suggest the government might still face challenges in meeting its budgeted direct tax target due to a potential shortfall in income tax collection.

Government Initiatives to Boost Ease of Doing Business for MSMEs

The Indian government continues its focus on enhancing the Ease of Doing Business (EoDB) for Micro, Small, and Medium Enterprises (MSMEs). Recent initiatives include simplifying procedures, digitizing compliance, improving access to credit, ensuring faster payments to MSME vendors, and facilitating market linkages both domestically and internationally. These measures are aimed at fostering a more conducive ecosystem for MSME operations, thereby improving their resilience, growth potential, and ability to integrate into larger value chains.

Widening Trade Deficit with China Raises Concerns

India's trade deficit with China is projected to reach $106 billion in 2025, driven by a significantly faster increase in imports from China compared to India's exports to the neighbouring country. Key import categories contributing to this widening deficit include electronics ($38 billion), machinery ($25.9 billion), organic chemicals ($11.5 billion), and plastics ($6.3 billion). These figures highlight India's continued dependence on Chinese capital goods and intermediates, making quick substitution difficult despite efforts to diversify supply chains.

India's $5 Trillion Economy Goal: A Revised Timeline

The International Monetary Fund (IMF) now projects India to achieve the $5 trillion economy mark around 2028-29, a delay from the earlier target of 2025. This recalibration is primarily due to factors like the rupee-dollar exchange rate and the calculation of nominal GDP, rather than a collapse in economic growth. The IMF, along with the RBI and other forecasters, still expects India to remain the world's fastest-growing major economy, with real GDP growth around 6.2–6.6% in 2025–26.

RBI Governor Describes "Goldilocks Period" Amidst Rate Cut

The Reserve Bank of India (RBI) Governor Sanjay Malhotra has characterized the current phase of the Indian economy as a "Goldilocks period," marked by high growth and low inflation. In line with this assessment and a benign inflation outlook, the RBI's Monetary Policy Committee (MPC) implemented a 25 basis points reduction in the repo rate in December 2025, bringing it down to 5.25%. This move is expected to have a positive impact on private investment and support growth.

Regulatory Challenges Identified in 2025

Despite robust economic growth, the Indian economy in 2025 faced significant regulatory challenges across various sectors, including civil aviation, public health, and finance. Issues such as excessive central planning, insufficient rule of law, and low state capability within statutory regulatory authorities (SRAs) have been identified as hindering private investment. Addressing these regulatory weaknesses is deemed a critical task for 2026 to foster an even more supportive environment for private sector growth.