Economic Context and Challenges
- The Indian economy is entering the financial year 2024-25 with a cautious growth outlook due to reciprocal tariffs, trade uncertainties, and geopolitical tensions.
- US President Donald Trump has promised to impose reciprocal tariffs on trading partners starting April 2, following tariffs on steel, aluminium, and automobiles, which may affect global trade dynamics.
- Vivek Kumar, economist at QuantEco Research, noted that these risks could potentially slow global growth, which may indirectly impact India by 5-10 basis points (bps), with direct effects possibly being greater.
Growth Projections
- The Economic Survey projects India’s growth between 6.3% to 6.8% for FY26, while the Reserve Bank of India (RBI) estimates 6.7% growth.
- Some economists believe that the trade uncertainty will eventually subside, leading to greater clarity for investors, coupled with lower inflation and strengthening domestic consumption.
Positive Economic Indicators
- Rumki Majumdar, economist at Deloitte India, highlights factors such as:
- Lower inflation
- Stable global oil prices
- Government tax stimulus
- Lower borrowing rates
- More liquidity
- These factors, along with a more certain global environment, are expected to boost market sentiment in FY26.
- The service sector has shown positive performance and is expected to continue its growth. The manufacturing sector is also showing signs of improvement, which will likely contribute significantly to GDP growth.
Trade and Export Concerns
- Trade experts have raised concerns about the evolving geopolitical dynamics and escalating tariff wars, which could impact India’s exports.
- According to Nomura, if India’s tariffs on US imports are 9.5% and the US tariffs on India are 3%, the reciprocal tariff could be around 6.5%. However, experts expect the US tariffs to be more broad-based and difficult to quantify.
- Biswajit Dhar, professor at Council for Social Development, warned that India’s exports could face pressure due to uncertainties in key markets like the US and the EU, two of India’s largest export destinations.
- India’s exports to the US account for 17.7% of total outbound shipments, while the EU accounts for 17.4%. The escalating tariff war and geopolitical tensions could hinder trade in both these regions.
Export Data and Outlook
- In February, India’s exports contracted sharply by 10.9% year-on-year, totaling $36.91 billion, impacted by global petroleum price fluctuations and growing economic uncertainty.
- Cumulative exports for the first 11 months of FY25 remained flat at $395 billion.
Optimistic Outlook Amidst Challenges
- Despite the challenges, economists remain hopeful due to India’s strong economic fundamentals, lower inflation, and positive growth drivers.
- A softening inflationary pressure could contribute to a pick-up in overall growth in FY26. However, economists also urge caution due to the uncertain global economic landscape and the ongoing tariff issues.
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