April 30, 2025
Global agencies including the IMF and Moody’s have revised India's growth outlook downwards, citing rising trade tensions
The recent US tariff hike on Indian goods, temporarily lowered to 10%, could impact India’s export competitiveness
India’s economic slowdown in FY25 was attributed to elections, erratic rainfall, and global trade uncertainty
Tax incentives announced by the government are expected to add ₹6.7–7.9 trillion in economic activity through increased consumption
India is likely to grow slightly faster in the current financial year, even as major global agencies pare back their forecasts for the country amid escalating trade tensions. In its May edition of the India Economy Outlook, Deloitte expects GDP growth to be between 6.5% and 6.7% in FY26, compared to 6.3–6.5% in FY25, citing a healthy domestic demand environment that could cushion the impact of global volatility.
Deloitte noted that India is navigating a complex economic terrain, balancing global trade disruptions with fiscal measures that aim to spur domestic consumption. The firm observed that two opposing factors are at play: tax incentives, which are set to boost consumer spending, and global trade uncertainties, which may temper export growth.
The consultancy underscored that this dynamic could keep India’s growth trajectory steady between 6.5–6.7%, even as global trade faces disruptions from policy moves like the United States’ tariff escalations.
In contrast, the International Monetary Fund (IMF) recently revised its growth estimate for India to 6.2% for FY26, down from its earlier forecast of 6.5%, highlighting concerns over intensifying trade frictions. Similar downward revisions have been issued by Asian Development Bank, Moody’s Analytics, and S&P Global. Moody’s, in particular, brought down its 2025 calendar year forecast by 30 basis points to 6.1%, attributing the dip to the US tariff hike.
Despite the external pressures, India’s Ministry of Finance asserted in its March Economic Review that the domestic economy remains resilient, with leading indicators signalling continued momentum in the final quarter of FY25.
The trade tensions stem from US President Donald Trump’s move to impose a 27% reciprocal tariff on Indian goods, citing India’s high average duties on US imports. The tariff has since been temporarily lowered to 10%, pending a bilateral agreement.
Deloitte India economist Rumki Majumdar noted that Indian exports are more sensitive to price shifts, making it imperative to protect their competitiveness. She stated that unresolved trade negotiations with the US could reduce India’s growth by 0.1–0.3 percentage points, underlining the importance of a swift agreement.
Looking back, the moderation in India’s growth in FY25 was attributed to the uncertainty surrounding general elections, erratic rainfall, and volatile global trade flows.
However, the government’s decision to forgo nearly ₹1 trillion in revenue via income tax cuts is expected to raise disposable income, especially for middle-income households. This move, Deloitte said, will likely trigger increased consumption.
Majumdar explained that the budget’s tax exemptions would significantly benefit the younger population with high income elasticity, potentially boosting GDP by 0.6–0.7% in FY26.
She added that the consumption multiplier effect could translate to ₹6.7–7.9 trillion in additional economic activity over the medium term, setting off a virtuous growth cycle.
Additional tailwinds, such as controlled inflation, stable oil prices, soft borrowing rates, and a more liquid financial system, are expected to support investor and consumer sentiment throughout the fiscal year.
Source: Mint