India’s Economic Edge
STORIES, ANALYSES, EXPERT VIEWS
Despite the Indian economy is facing a slew of challenges, it continues to perform better than many other countries.
While downgrading India’s growth prospects from 6.6 per cent to 6.3 per cent for 2025, the UN still sees it as the fastest-growing major economy. In contrast, China is expected to grow by 4.6 per cent (from 5 per cent earlier), while the US is set to decelerate from 2.8 to 1.6 per cent this year. Emerging economies such as Brazil, Mexico and South Africa are also facing growth downgrades owing to factors like depressed trade and investments. Even the US is facing a slowdown owing to the fallout of Trump’s tariff policies, compounded by Moody’s unprecedented decision to downgrade its credit rating.
Reserve Bank of India upbeat
The Reserve Bank of India sounds upbeat in its latest report, noting that the country is poised to surpass Japan this year to become the world’s fourth largest economy. Though it describes the outlook as one of cautious optimism, it points to easing of inflation pressures, while a normal monsoon forecast is expected to spur rural consumption.
The central bank has already downgraded its projection for the ongoing financial year to 6.5 per cent from 6.7 per cent, but it has pointed to the multiple strengths of the Indian economy. These include the fact that it is ringfenced by monetary, financial and political stability along with a congenial business environment and strong macroeconomic fundamentals.
The big worry for India: prolonged war
The big worry, writes Sushma Ramachandran (senior financial journalist) “is the prospect of a prolonged conflict. Given the fact that Operation Sindoor has only been paused, tensions with Pakistan might flare up again. This raises the grim possibility of disruption to normal economic activity. A revival of hostilities could bring industrial and trade activities to a halt, especially in the northern and western regions…..”
Another element that could upset the applecart is "the worsening of geopolitical fissures….”
Despite these headwinds, the UN report argues that resilient private consumption and strong public investment along with robust services exports will support economic growth in India. Its views have been buttressed, interestingly enough, by Moody’s, which says India is better placed to face the vagaries of trade disruptions owing to its large domestic economy and low dependence on exports. The ratings agency may have cut its growth forecast to 6.3 from 6.7 per cent, but it feels that India could benefit from higher US demand after the conclusion of the bilateral trade pact.
The Trump effect: The full effect of Trump’s fast-changing tariff policies on the Indian economy, is something that should worry planners. “Much will depend on the outcome of ongoing negotiations. Their criticality cannot be downplayed as the US is India’s biggest market, accounting for 17 per cent of the total merchandise exports. The principle of reciprocity may mean that India will have to provide greater market access in areas earlier considered sacrosanct, such as agriculture and the dairy sector….”
