IN JUNE LAST YEAR, when the results of the Lok Sabha elections were announced and the Bharatiya Janata Party secured 240 seats, it had to depend on its National Democratic Alliance partners to form a government. At that moment, the question on everyone’s mind was, will Prime Minister Narendra Modi be able to successfully lead an alliance without the BJP being in the majority?

Given the compulsions of alliance leaders under previous coalitions, the concern was whether coalition pressures will undermine the policy plank of the government.

As the BJP-led NDA government, or Modi 3.0, completes one year in office on June 9, sceptics have been silenced. Mega initiatives have been taken by the government without any visible cracks, even on sensitive issues, including the controversial Waqf (Amendment) Bill, 2024.

Major decisions have been taken on the economic front as well. More than a dozen projects have been announced in the last one year by the Union Cabinet across sectors, entailing economic benefits to the tune of ₹4 lakh crore. India’s economy, the fastest growing in the world, continues to remain stable with mega investments lined up in infrastructure, semiconductors, and sunrise sectors.

The government has also showcased its strength in defence by clamping down on terror outfits based in Pakistan and Pakistan-occupied Jammu and Kashmir in the wake of the Pahalgam attack. Indian forces destroyed some Pakistani airbases, establishing a new normal that terror strikes will be akin to a war on the nation.

Macroeconomic stability

That said, the Indian economy has remained largely stable over the past one year, even in the wake of global tremors emanating from America’s Liberation Day tariff tantrum, which kicked off on April 2, 2025, with “reciprocal tariffs”, but waned soon as the Trump administration pressed the pause button, given the retaliation from China.

Also, fears of a spike in inflation, a growth slump, and recession, along with the non-compromising stand of the U.S. Federal Reserve on monetary easing, led the Trump administration to renegotiate a trade deal with China, which has now been sealed.

The only fallout for India in the build-up to the MAGA (Make America Great Again) din of Donald Trump has been foreign institutional investor (FII) outflows and the subsequent hammering of the rupee. FIIs pulled out a net ₹1.27 lakh crore in FY25, of which ₹1 lakh crore was offloaded between September 2024 and March 2025. From a high of 83.47 against the dollar on September 20, the rupee fell to 85.55 on May 20, after touching a low of 87.78 on February 7, despite minimal intervention by the Reserve Bank of India. The good news, however, is that the country’s foreign exchange reserves have risen to a seven-month high of $690.6 billion as on May 9, 2025.

The growth engine is also running at a fast pace.

According to data released by the Ministry of Statistics, real GDP growth in Q4FY25 accelerated to 7.4%, against 6.4% in Q3. The economy expanded by 6.5% in FY25, compared with a 9.2% growth in FY24. The second advance estimates for FY25 had projected a real GDP growth rate of 6.5%, and a nominal growth rate of 9.9%.

The government expects the economy to grow in the range of 6.3% to 6.8% in the longer term. Chief economic advisor V. Anantha Nageswaran pointed to silver linings on the macroeconomic front in his address at the CII Annual Business Summit. “Energy prices are much lower. Regardless of how the tariff numbers will play out after 90-day expiration from the Liberation Day, there will be some sectors where India did not enjoy an advantage before, but may enjoy an advantage later from the tariff perspective,” Nageswaran said. “Progress of monsoon is good and there is an expectation that it will be above average, and it is likely to be well distributed.”

The momentum in the economy picked up in Q4FY25, and is continuing in Q1FY26, Nageswaran said after the release of the latest GDP numbers. “This is a good sign.” 

Consulting firm Deloitte is bullish on the momentum and the “inherent strength” in the economy, evident from the upward revision of the 2023-24 GDP growth rate to 9.2% (the highest in 12 years), compared with 8.2% estimated earlier. “The optimism is carried forward, as we see a good jump in high-frequency indicators such as the Goods and Services Tax (GST), auto sales, and sales of fast-moving consumer goods in recent months,” it says in its India Economic Outlook 2025.

Oiling India’s growth engine

India continues to enjoy the distinction of being the fastest-growing major economy globally. The International Monetary Fund’s World Economic Outlook released in April says the Indian economy is expected to grow 6.3% in 2026, leaving behind global and regional peers by a high margin — China’s economic growth has been pegged at 4% each in 2025 and 2026, and that of the U.S. at 1.8% and 1.7%, respectively. Global economic growth has also been projected much lower, at 2.8% in 2025 and 3.0% in 2026 according to the IMF.

Experts say the factors that are expected to propel India’s growth engine include benign inflation (the retail inflation rate hit a six-year low of 3.16% in April) and free trade agreements (FTAs), which the Ministry of Commerce is aggressively pursuing.

“Prices of cereals coming down are a big positive. Vegetables and fruits tend to have a little erratic pattern. But cereals distinctly coming down means lower food inflation for a couple of quarters at least. It opens up space on the household budget for discretionary consumption. With this, consumer sentiment is expected to pick up,” says Rajni Thakur, chief economist, L&T Finance.

U.K. FTA done, U.S. next?

A major trade breakthrough took place on May 6, with the finalisation of the India-U.K. FTA, which will provide zero duty access to 99% of India’s exports to the U.K. The pact also promises to remove/reduce tariffs on 92% of goods that are imported from the U.K. “Bilateral trade, valued at $60 billion (£42.6 billion) in 2024, is projected to double to $100 billion (£75 billion) by 2030,” EY says in its U.K.-India FTA alert.

Within days of signing the deal, commerce minister Piyush Goyal held talks with U.S. commerce secretary Howard Lutnick on the India-U.S. bilateral trade agreement, on which negotiations have been going on. “Good discussions with Secretary Howard Lutnick towards expediting the first tranche of India-U.S. Bilateral Trade Agreement,” Goyal said in a post on X on May 20.

A preliminary agreement is likely by the end of the first half of FY26. According to the India-U.S. joint statement dated February 13, 2025, both sides have agreed to expand bilateral trade to $500 billion by 2030.

Other key deals

Deliberations are underway on trade pacts with around 10 partners, a commerce ministry source close to the development told Fortune India. “Negotiations are on with a number of trading partners, including the U.S. and the EU. Efforts are also on to forge new ties with other nations.”

India and the EU have decided to conclude FTA negotiations by the year-end. Goyal met EU commissioner for trade and economic security, Maros Sefcovic, in Brussels on May 1. India and Chile, too, are planning a Comprehensive Economic Partnership Agreement (CEPA), encompassing technology, health, agriculture, and critical minerals, among others. Under CEPA, Indian companies will bid for lithium in Chile.

India and New Zealand have agreed to revive FTA negotiations, stalled for over a decade now. India is also advancing CEPA talks with Oman, and has inked a pact to enhance trade and investment with the European Free Trade Association comprising Iceland, Liechtenstein, Norway, and Switzerland.

The ASEAN-India Trade in Goods Agreement (AITIGA), signed in 2009, is also being reviewed. In addition to the above, India and Qatar are scouting for FTA opportunities. Both countries plan to double bilateral trade to $28 billion in the next five years. An India-Canada CEPA, an India-GCC (Gulf Cooperation Council) FTA and an investment treaty with Saudi Arabia are also in the pipeline.

Tax relief

In fact, the benefit of nil taxes on annual income up to ₹12 lakh announced in the Budget was one of the bold moves of the Modi government. In one stroke, 15 million taxpayers were moved out of the tax net, and the decision cost the government ₹1 lakh crore in terms of revenue foregone. According to Deloitte, the move will add 0.6-0.7% to the country’s GDP.

Apart from these initiatives, the government is going all guns blazing in the infrastructure sector, and has come out with a scheme to provide paid internships to its youth in the top 500 companies. Central capital expenditure has surpassed the FY25 target of ₹10.18 lakh crore, spending a total of ₹10.52 lakh crore, despite initial hiccups due to elections. A record expenditure of ₹2.4 lakh crore has been done in March alone. Besides, ports have been one of the key focus areas for the government, with the Centre approving the ₹76,000-crore Vadhavan port in Maharashtra.

Modi 3.0 has largely remained unaffected by the so-called coalition compulsions. Mega decisions have been taken on the economic front, which are expected to serve as a launch pad for future growth.