India introduced a broad package of economic reforms in 2025, from amendments to the labour law to the liberalisation of nuclear energy. The economy grew strongly by 8 per cent in the first half of the fiscal year, the government said in a year-end assessment released this week.
The reform drive that the government described as a move to think bigger and move faster with reforms deeper under the leadership of Prime Minister Narendra Modi is happening while India is still battling a strong storm of external pressures among which is one of the most unprecedented tariffs imposed by the Trump administration. GDP growth went up to 8.2% in the second quarter, which is higher than what the market had anticipated.
Labour-Tax Restructuring
Four new labour codes came into force on November 21, replacing 29 older labour laws and marking what experts call India’s most transformative structural reform since 1991. The codes relating to wages, industrial relations, social security and workplace safety are projected to bring 50 to 70 million contract workers under formal social security coverage and reduce factory compliance requirements by 60 to 70 per cent.
The Centre also rationalised the Goods and Services Tax structure into predominantly two slabs of 5 and 18 per cent, and 40 per cent on luxury and sin goods, with effect from September 22. The revisions are believed to have eased the consumer’s tax burden by an average of 5 per cent, putting about Rs 1 lakh crore back into circulation. A new Income Tax Act, 2025, replacing the 1961 law with simplified provisions, is slated to take effect from April 1, 2026.
Opening Strategic Sectors
In December, Parliament gave the green light to the bill Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India which, after 70 years, permits private and foreign entities to participate in a nuclear-powered civilian sector. The government says the move will attract investments of $100 to $150 billion by 2047.
The insurance industry got clearance of 100 per cent foreign direct investment that was likely to raise the number of additional people covered by 80 to 100 million and attract foreign capital inflow of $8 to $12 billion. Amidst such economic and political decisions, the more contentious Viksit Bharat G-RAM-G Bill replacing the rural job guarantee scheme and increasing guaranteed days from 100 to 125 days earlier, got Presidential assent on December 20 after it sailed through Parliament amidst pandemonium in both houses.
Trade Expansion
India made significant strides in the global market with three notable trade agreements, in the year. On July 24, a far-reaching agreement with the United Kingdom was signed, followed by another accord with Oman, and a free trade agreement with New Zealand was finalised on December 22. The UK agreement eliminates tariffs on 99 per cent of Indian exports and is forecasted to raise the two- way trade volume by $34 billion per year by 2040.
The IMF praised the reform drive by noting that complete structural changes are essential to underpin India’s goal of an advanced economy. With negotiations already in effect towards agreements with the European Union, the United States, Mexico, Israel, Canada, and the Gulf Cooperation Council, 2025 is among the busiest years ever in terms of economic diplomacy for the country.
The labour reforms are considered a sea change in how India administers its population of workers. The new set of codes replaces the decades-old law that many businesses had found compliance with burdensome. The government expects to make it easier for companies to operate while protecting workers by easing the compliance burden by 60-70 per cent.
Coverage under social security for the addition of 50 to 70 million contract workers represents a huge expansion. In the earlier scenario, these workers enjoyed little or no protection against sickness or loss of jobs.
The simplification of taxation is friendlier for the consumer and a business to operate out how much they owe. Having just two main tax rates instead of multiple slabs reduces confusion and compliance costs.
Opening up atomic energy to private and foreign investment would be a major policy shift. Since Independence, the atomic sector has remained the exclusive bastion of the government. The entry of private firms might accelerate the development of atomic power plants.
Insurance sector reforms are to increase cover to millions of currently uninsured Indians. More foreign investment can bring new knowledge and money to the industry to grow it. This change made to the rural employment guarantee raises the number of workdays from 100 to 125, thereby giving rural workers additional income security. Nevertheless, the bill was passed with protests meaning that it is still a highly controversial issue.
India is going to be in a better position to export its goods after signing these three trade agreements. Out of all three deals, the one with the UK is of particular significance as it results in the removal of tariffs on 99 percent of the products that India exports. India is ramping up efforts to become a major player in global trade with more trade talks happening with large economies. This is happening while the need for alternatives to China in manufacturing and trading partnerships is growing among countries.
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