Current Affairs - Economy

The Indian government has announced a landmark reform by allowing 100% Foreign Direct Investment (FDI) in the insurance sector, replacing the previous 74% cap. This change is part of the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2025, and aims to attract significant foreign capital into the sector. The Insurance Regulatory and Development Authority of India (IRDAI) will oversee the verification of such investments under the automatic route to ensure transparency. The reform is expected to encourage global insurers to enter the Indian market, foster innovation, strengthen competition, and provide much-needed capital. With India’s insurance industry projected to grow at 7.1% annually, this move is positioned to accelerate expansion and modernization.

India has signed the Terms of Reference (ToR) with the Eurasian Economic Union (EAEU) to initiate negotiations on a Free Trade Agreement. Established in 2015 and headquartered in Moscow, the EAEU includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. The bloc ensures free movement of goods, services, capital, and labor while promoting regional economic integration. For India, this engagement holds immense significance by providing access to a USD 6.5 trillion market, enhancing energy security, and strengthening trade diversification beyond the US and EU. It also supports India’s connectivity initiatives such as the INSTC and Chennai–Vladivostok Corridor, paving the way for long-term strategic cooperation.

India’s GDP growth in Q1 FY26 stood at 7.8%, marking a strong performance that exceeded both RBI and market expectations. This growth was significantly higher than the 6.5% recorded in Q1 FY25, showcasing resilience in the economy despite global uncertainties. The services sector emerged as the top performer with 9.3% growth, followed by robust rebounds in manufacturing and construction. Agriculture also played a vital role, growing at 3.7% due to a favorable monsoon. Strong government spending and increased investments further boosted the economy, while private consumption remained relatively subdued. This growth reflects India’s strong macroeconomic fundamentals.

India’s Index of Industrial Production (IIP) recorded a 3.5% year-on-year growth in July 2025, improving from 1.5% in June 2025. The growth was primarily driven by a strong 5.4% rise in manufacturing, which offset a sharp -7.2% decline in mining. Electricity output saw a marginal rise of 0.6%. Within manufacturing, sectors such as basic metals, electrical equipment, and non-metallic mineral products showed notable increases, with growth rates of 12.7%, 15.9%, and 9.5% respectively. This industrial performance highlights resilience in key sectors like infrastructure and consumer goods, reflecting positive momentum in India’s overall economic landscape.

India is projected to become the world’s second largest economy in purchasing power parity (PPP) terms by 2038, with an estimated GDP of USD 34.2 trillion. This milestone will be driven by multiple factors including a youthful demographic profile, strong domestic demand, and high savings rates that fuel capital formation. Additionally, India’s declining debt-to-GDP ratio, coupled with structural reforms such as GST, IBC, UPI-led financial inclusion, and production-linked incentives, will support sustainable growth. Investments in infrastructure, renewable energy, and emerging technologies further strengthen this trajectory, positioning India as a global growth engine and a key player in the future economic landscape.