Prime Minister Narendra Modi started his third term on June 10, 2024 by signing the release of ₹20,000 crore to 93 million farmers under PM Kisan Nidhi Yojana. The budget for 2024-25, presented the following month, announced an internship programme at 500 top firms for at least 10 million youth. And the latest budget, presented on February 1, 2025 gave significant income-tax relief to the middle class by effectively ensuring that people earning up to ₹12.75 lakh were outside the tax net. The fiscal deficit for 2024-25 came in at 4.8% (revised estimate), against a budgeted estimate of 4.9% — indicating that none of these measures bust the bank. The budgeted fiscal deficit for this financial year is 4.4%.
In effect, in its third term, the Narendra Modi government continued its emphasis on welfarism and growth, and on four key target groups — farmers, women, young people, and the middle class. It also expanded its focus on trade, kept up its discipline on the fiscal deficit, and sought to stitch together a string of foreign investment deals.
First, growth. The NDA began its 12th year in power with India continuing to be the fastest growing large economy in the world for the fifth year in a row. India is also set to be the fourth largest economy in the world by the end of the current financial year. India’s GDP grew 7.4% in the fourth quarter of 2024-25, leading to 6.5% growth in FY25 despite severe global headwinds, including uncertainties in global trade because of the US’ reciprocal tariffs.
The growth in the January-March quarter was on account of all engines – manufacturing, services and agriculture, finance minister Nirmala Sitharaman said last week. “India is sustaining this growth as the fastest growing economy now for the fourth year continuously without a break, thanks to the work of our small, medium and large industries, which are coming in and making sure our manufacturing capacity, our service capacity, are all intact. And agriculture has also sustained us,” she said.
Next, trade, which was the unofficial theme of the year.
India’s economic growth momentum, its large middle-class consumer base, and its emergence as a reliable alternative to China in global supply chains were key reasons for all major economies flocking to forge bilateral free trade alliances. On the back of two FTAs – one with the United Arab Emirates (UAE) and the other with Australia in 2022 — the Modi government finalised two major deals in its third term.
The first was the India-European Free Trade Association (EFTA) free trade agreement. Iceland, Liechtenstein, Norway and Switzerland are the four members of EFTA. The deal – the Trade and Economic Partnership Agreement (TEPA) – is significant because it is expected to help India bridge a huge gap in the balance of trade, which is in favour of the European nations. During 2023, India’s trade deficit with the EFTA states was more than $18.57 billion. The other significant, and unique, feature of the FTA in favour of New Delhi is the European block’s commitment for direct investments of $100 billion in India in the next 15 years.
The India-UK free trade agreement announced on May 6 this year is the second. The India-UK FTA, which is currently undergoing legal scrubbing and expected to be enforced in a year, is expected to double bilateral trade to over $120 billion by 2030. The other advantage of the deal is its impact on the India-European Union free trade negotiations. A bilateral trade agreement with a dominant European country and the world’s sixth largest economy has accelerated India-EU negotiations, and another FTA is expected to be announced soon.
And on February 13, India became the first country to announce that it was negotiating a Bilateral Trade Agreement (BTA) with the US after Donald Trump took over the presidency for the second time. Modi and Trump on February 13 agreed to forge a BTA to double bilateral trade between the two countries to $500 billion under the Mission 2030. This commitment came before Trump’s April 2 announcement imposing 10% baseline tariff on all partners and different reciprocal tariffs on about five-dozen countries, including India. US commerce secretary Howard Lutnick earlier this week outlined the contours of a potential trade deal seeking “reasonable” access to the Indian market and a reduction of the trade deficit. “India has put the right person on the other side of the table. We have managed, I think, to be in a very, very good place. You should expect a deal between the United States and India in the not-too-distant future because we’ve found a place that really works for both countries,” Lutnick said at an event hosted by the US-India Strategic Partnership Forum.
Third, investment. India incentivised foreign investors to participate in India’s growing prosperity by liberalising the foreign direct investment (FDI) regime. The budget on February 1 announced the government’s decision to raise the FDI limit in the insurance sector from 74% to 100% with the condition that the enhanced limit would be available to those foreign firms that invest the entire premium in India. Gross FDI, as per data from the RBI, increased from $71.3 billion in 2023-24 to $81 billion in 2024-25.
Despite global headwinds and geopolitical turmoil, India achieved record goods and services exports of $825 billion in 2024-25. Similarly, gross Goods and Services Tax (GST) revenues in April touched ₹2.37 lakh crore with 12.6% annualised growth, the highest ever monthly collection since launch of the indirect tax regime in July 2017, reflecting resilience of the domestic economy backed by robust contributions of almost all states.
The Budget 2025-26 spelled out exports as one of the four growth engines for the Indian economy with agriculture as the first engine followed by micro, small and medium enterprises (MSMEs) and investments. In her budget speech on February 1, Sitharaman said that the four engines would propel India’s journey of development, fuelled “reforms” with “our guiding spirit” of “inclusivity” and the destination is “Viksit Bharat”. India’s exports, as seen in GDP data, grew at 6.3% in 2024-25 compared to 2.2% in 2023-24.
The focus on trade is crucial for the growth of the Indian economy as steady performance in both goods and services exports, besides remittance inflows have served as an important buffer for the country’s current account. “The Indian rupee strengthened in April 2025 and remains one of the best-performing major currencies against the US dollar. With this stability and a stronger external position, India’s foreign exchange reserves remain adequate, providing an import cover of approximately eleven months,” the latest issue of the finance ministry’s monthly review, released on May 27, said.
And finally, the fisc. The government has signalled that its consolidation approach will continue while keeping a focus on capital spending. In the Budget, it was clear that the government had tried to balance the demands of managing the fisc alongside boosting growth and not getting into a self-defeating consolidation exercise. This was important given that the 2024-25 nominal GDP growth ended up almost a percentage point — 9.7% instead of 10.5% — lower than what the July 2024 budget assumed.