The finance ministry in its monthly economic report for Feb, highlighted considerable risks to the economic growth outlook due to geopolitical tensions, trade policy uncertainties, and financial market volatility while expressing confidence in robust private investment. It stated that the Indian economy appears on track to achieve the projected 6.5% growth in FY25, driven by a strong performance in the March quarter.
India’s economic growth faces challenges from geopolitical tensions, trade policy uncertainties, and financial market volatility, the finance ministry cautioned in its latest review. This caution comes amid an escalating tariff war initiated by US President Donald Trump under his ‘America First’ policy, with reciprocal tariffs set to take effect on April 2.
The report stated that global trade remains impacted by policy uncertainty, with the Global Trade Policy Uncertainty Index reaching a record high of 237.4 in the fourth quarter of 2024. Tariff-related developments across multiple countries have intensified trade risks, disrupting investment and global trade flows.
In its latest Monthly Economic Review, the finance ministry stated, “Global trade continues to be affected by uncertainty in the policy environment… tariff-related developments in multiple countries have heightened trade-related risks, affecting investment and trade flows globally. Consequently, India’s exports have recorded softer growth thus far in FY25. However, a robust services trade surplus continues to offset the impact of lower growth in merchandise exports.”
Despite global economic uncertainties, the ministry urged the country to remain optimistic, emphasizing that private sector investment, supported by confidence in the country’s resilience, could mitigate these risks. The review stressed the “mutual endogeneity” of investment spending and consumption demand, highlighting that changes in personal income-tax structures are expected to enhance middle-class disposable incomes and boost consumption.
Agricultural production forecasts suggest a favorable outlook for food inflation, with retail inflation easing to 3.6% in February 2025 due to stable food prices. The ministry projected India’s GDP growth at 6.5% for FY25, following 5.6% in the second quarter and an improved 6.2% in the third quarter. It expects domestic private sector capital formation to be a key driver of economic growth in FY26, supported by strong agricultural and service sector performance, rising consumption, and growth in merchandise and services exports.
On fiscal matters, the ministry reported that actual deficits, critical financial ratios, and essential expenditures are closely aligned with budget estimates, reaffirming a commitment to fiscal targets. The Union Budget 2025-26 outlined a debt reduction strategy, aiming to decrease government debt by at least 5.1 percentage points between FY25 and FY31.
The monthly review highlighted stable labour market conditions and noted that multiple employment outlook surveys indicate optimism and a rising inclination toward increased hiring in the next quarter.
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