India, Jan. 1 -- In terms of economy, 2025 will be remembered as a year where domestic policy acted as a bulwark against external headwinds to growth. The process started from the 2025-26 Union Budget itself when the government announced a big-bang revision in income tax slabs which effectively entailed a large reduction in tax liability for individual taxpayers. The budget itself assumed this to be about Rs.1 lakh crore. This was followed up later with legislative reforms to make filing taxes simpler. Interestingly, there was no pressing reason for the government to have done what it did. General elections were held in 2024 and the pre-election budget was pretty cold to electoral considerations prioritising fiscal prudence instead. To be sure, even the 2025-26 Budget assumes a fiscal consolidation over last year. Perhaps it was political payback to the core electoral constituency of the Bharatiya Janata Party (BJP) - the middle class - with a time lag. The bet paid off in the Delhi elections, with the BJP winning India's only city-state where middle class voters are a decisive share. Perhaps it was a course correction to rejuvenate political capital as was seen in the BJP falling below the halfway mark in the Lok Sabha for the first time after 2014. With a landslide in Bihar, even this objective has been achieved. Whatever it was, it turned out to be a wise step in hindsight after US President Donald Trump announced a 25% reciprocal tariff on India exports which he later increased to 50% after unfairly adding an additional 25% tariff for India importing Russian crude oil. The US is India's largest export market and accounted for almost one fifth of merchandise exports before the Trump tariffs. While the ultimate impact on US exports will have to wait for the full year data and whether or not a trade deal is reached, the hit to economic sentiment was palpable. It was in this environment that the income tax boost to consumption and hence domestic demand enabled growth was a huge shock absorber in the system. While the decision was significant in itself, the government decided to offer an additional boost to the economy by rationalising GST rates from the end of September. This decision to bring down GST rates was driven by a federal consensus - it is the GST Council and not Centre or states alone, which decide GST rates. Once again, the boost was discernible and it seems that some of the tailwinds will outlast what was believed to be a one-off festive season spike in consumption demand. While these two steps have provided an unambiguous boost to domestic demand in the economy at a time when the external engine of growth ran into turbulence, most of the economic commentary was focused on monetary and not fiscal policy. The reason was simple. Inflation started falling rapidly after the first quarter of the year and reached its lowest ever value in the current series - it was at a record low of 0.25% in October and 0.71% in November - primarily on account of falling vegetable prices. With GDP growth showing impressive print in the first two quarters of the year - real GDP grew 7.8% and 8.2% in the first and second quarters respectively - the RBI was faced with a not an entirely unwelcome dilemma of whether to cut rates aggressively to exploit low inflation or preserve policy credibility for the near future when inflation is expected to rise further and growth come down somewhat. To be sure, the RBI did bring down rates by 125 basis points in 2025, the most it has reduced in a year since 2019. As the RBI and government celebrated the low inflation high growth rate goldilocks, concerns were also raised whether the economy could do with a bit more inflation, especially given the concerns of nominal growth rate ending up single digits in the ongoing fiscal year. Even Union finance minister Nirmala Sitharaman, speaking at the HT Leadership Summit on December 6, agreed to the idea that a little more inflation would not have been bad in principle. Not all of the debate on the economy is driven or shaped by macro fundamentals or rational thought. There are parts of the economy which are volatile, more fury than sound and more polemics than reason. The rupee-dollar exchange rate is the biggest example of this. The rupee started 2025 at 85.65 against a dollar and is ending at 89.79 against it, the largest loss of value in a year since 2022. The reasons are manifold - strengthening US dollar globally, foreign capital outflow from India, Indian stock markets performing rather poorly over the year and of course the Trump tariffs on India. The RBI too, seems to have let the rupee lose some of its value for twin concerns of depreciation cushioning some of the tariff impact against exports and not wasting its forex market firepower against what has been a strong outflow sentiment. If the tax cuts at the beginning of the year were prudence in hindsight, the exchange rate policy has been prudence with a foresight. None of this is to say that the economy faced no challenges in 2025. But what matters is, things were remarkably stable compared to what the rest of the world faced....