India, explained.
A vendor sells home decor items at a market in Kolkata, India, on 19 October 2025 (Sudipta Das/NurPhoto via Getty Images)
Labour codes, tax cuts and GST reforms position India for a new era of growth and international influence.
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India’s economic reforms: Domestic resilience to reshape global standingIndia’s economic reforms: Domestic resilience to reshape global standing
In a year defined by global economic turbulence, geopolitical tensions, and trade disruptions, India in 2025 has charted a course of remarkable resilience through a series of transformative reforms. With projections from the International Monetary Fund (IMF) estimating a robust 6.6% growth for the fiscal year 2025–26, following a 7.8% expansion in the first quarter, India is leveraging structural changes to cushion itself against external headwinds like high tariffs from the Trump administration. These reforms, which include a Goods and Services Tax (GST 2.0), income tax revisions, rate cuts by the Reserve Bank of India (RBI), and the landmark introduction of four labour codes, represent a pivot towards domestic demand and economic formalisation. Beyond their immediate benefits, these policies are poised to reshape India’s role as a global economic power and alter its relationships with trade partners and investors worldwide.
At the heart of India’s reform agenda is a focus on boosting consumption as a driver of GDP growth, a shift from earlier supply-side strategies. The GST 2.0 reforms, which moved tax rates on essential goods from 12% to 5% and many from 28% to 18%, alongside exemptions for essentials like food staples, have reduced household costs by up to 13%. Coupled with revised income tax rates that increase disposable income for the middle class and the RBI’s cumulative 100 basis point rate cuts in 2025, these measures are revitalising sectors like real estate, automobiles, and consumer durables. Home loan repayment sums have dropped by nearly ₹3,000 monthly for a ₹5 million loan (around a 7–8% reduction in the average monthly instalment), while auto sales surged 15.8% year-on-year in October. This demand-side stimulus, as the IMF notes, helps offset external pressures such as 50% US tariffs, ensuring economic stability amid global uncertainty.
Perhaps the most transformative of these reforms are the four labour codes on wages, industrial relations, social security, and worker safety, enacted on 21 November 2025. Described as India’s most significant structural reform since 1991, surpassing even the GST in scope, the codes impact 63 million enterprises compared to the GST’s 12 million by streamlining compliance and incentivising formalisation of the informal economy. By reducing 1,436 rules to 351, consolidating 181 forms to 73, and slashing 84 registers to 8, alongside digitisation and harmonised definitions, the codes dismantle a punitive, bureaucratic system that once burdened businesses with 32,542 compliance obligations across states. A uniform 10-employee threshold and a shift from enforcement to facilitation by repositioning inspectorates as advisory partners, further ease the transition for 62 million informal enterprises.
By cultivating a more resilient and formalised economy, India seeks to enhance its strategic autonomy and attractiveness as an investment destination.
The international implications of these domestic reforms are far-reaching. By cultivating a more resilient and formalised economy, India seeks to enhance its strategic autonomy and attractiveness as an investment destination. The IMF’s endorsement of these structural changes adds a layer of credibility, assuring foreign investors of a stable policy environment and a government committed to fiscal discipline. A predictable and simplified regulatory landscape, particularly under the new labour codes, addresses long-standing concerns among multinational corporations about bureaucratic hurdles. This will make India a more compelling participant in global supply chain diversification strategies, offering a scalable and democratic alternative for manufacturing and services.
Consequently, these reforms could fundamentally alter India’s position in the global geoeconomic landscape. A stronger, self-reliant Indian economy will carry more weight in international fora, lending it greater influence in shaping global trade norms and resisting protectionist pressures. With these reforms in place, India expects to attract foreign direct investment (FDI) flows. Buoyancy in FDI is critical for India’s goal of becoming a five trillion-dollar economy within the IMF’s estimate of FY 2029–30. For emerging economies, if India succeeds in formalising its workforce and boosting domestic demand, New Delhi will have set a powerful new development template to emulate.
Challenges remain in translating these reforms into sustained international leverage. Execution is critical as banks must swiftly transmit rate cuts, businesses must pass on GST savings, and the government must finalise rules under the labour codes to avoid ambiguity. The IMF’s caution on risks among non-bank financial institutions (these are entities that provide financial services without banking licenses, for example Bajaj Finance Limited) and rising input costs also signal potential vulnerabilities that could affect investor confidence.
India’s 2025 reforms are a deliberate strategy to build a self-reliant yet globally integrated economy. By empowering its consumers, workers, and enterprises, India seeks to insulate itself from external volatility.
About the author
Pratyush Paras Sarma
Pratyush Paras Sarma is a PhD researcher at the School of Politics and International Relations, Research School of Social Science, Australian National University, Canberra.
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