Global Headwinds Don’t Derail Economy, But Challenges Still Remain

Despite several challenges to global growth, the Indian economy not only stays resilient but also shows signs of steady progress, says a recent report by the Reserve Bank of India (RBI). This is not a case of a compliant central bank toeing the government line; global experts have also expressed similar views, including Morgan Stanley, Fitch Ratings, and Moody’s Ratings, which all are bullish on India. The economy’s resilience is largely underpinned by strong domestic demand, which has helped offset challenges from a volatile external environment.

Broad-based recovery in consumption, coupled with sustained investment momentum, particularly in public infrastructure and household capital expenditure, continues to drive economic activity. These internal growth engines are playing a crucial role in maintaining economic momentum. A recent report by Morgan Stanley emphasised that India’s policy environment remains supportive of growth. It highlighted the likelihood of continued accommodative monetary policy and a fiscal stance focused on capital expenditure. This combination is creating a favourable macroeconomic backdrop. Inflation is projected to remain benign, while the macroeconomic indicators are showing stability.

On that count, the Indian economy appears well-positioned to leverage its internal strengths and policy support to sustain its growth trajectory. Further validating the optimistic outlook, Fitch Ratings upwardly revised its estimate of average annual growth potential through 2028, raising it to 6.4 per cent from the 6.2 per cent made in November 2023. The ratings agency attributed this revision to the stronger-than-expected post-pandemic recovery. According to Fitch, the country’s economy bounced back more robustly than anticipated, indicating that the long-term economic “scarring” from the Covid-19 shock was less severe than feared.

This improvement in growth potential reflects India's ability to not only recover quickly but also to strengthen its economic fundamentals in the face of adversity. Moody’s Ratings, also painting a relatively positive picture, noted that India is “well-positioned” to navigate the adverse effects of the potential US tariffs. Additionally, it indicated that the geopolitical tensions with Pakistan are unlikely to result in any significant economic disruption for India.

These observations underscore increasing economic maturity and India’s ability to maintain stability despite global economic and regional political uncertainties. Meanwhile, Moody’s also cautioned that US President Donald Trump’s proposed tariffs could dampen global economic growth. Such a development would inevitably have some negative spillover effects on India, given its integration with the global trade and investment system. While the domestic demand offers a cushion, weaker global growth could still impact exports, investment inflows, and overall business sentiment. But the broader consensus among analysts and institutions is that India remains on a solid growth path.

The convergence of supportive macroeconomic policies, resilient domestic consumption, and rising capital investment positions India as one of the more stable and promising emerging markets. The RBI, while carefully monitoring inflation and financial stability risks, appears committed to maintaining a growth-supportive policy environment. All these opinions are comforting, but the country’s policy makers should not lose sight of the prevalent problems like unemployment, inequality and regulatory overreach. It is true that global uncertainties and geopolitical risks have failed to hurt the prospects of the Indian economy, but the internal problems are no less daunting. India has successfully faced many challenges; it must continue to do so.