India amid global strain

The Indian economy, with its low external trade exposure, is better placed than many other countries amid the global trade war.

- RAJANI SINHA

However, in an increasingly interconnected world, it cannot remain entirely insulated from heightened global uncertainties. India's gross domestic product (GDP) growth had already been moderating even before the trade war erupted. Broad-based consumption spending remains elusive, while private investment is still not roaring back. The global trade war is likely to further dent India's economic growth outlook.

The silver lining amid these growth concerns is the moderation in domestic inflation. With comfort on the inflation front, the Reserve Bank of India (RBI) has shifted focus on supporting growth, cutting interest rates twice (a cumulative 50 basis points), and adopting an accommodative stance—signalling the possibility of further rate cuts.

India's GDP growth is estimated to moderate to 6.5 per cent in FY25, down from an average of 8.4 per cent over the past two financial years. The slowdown can be attributed to a pause in government investment—largely due to the election cycle—even as private investment remained feeble. Moreover, there has been some dwindling in urban consumption spending, though rural consumption has continued to improve. GDP growth is expected to pick up sharply in Q4 FY25, led by a bounce-back in government investment and increased spending in this quarter due to the Maha Kumbh. However, this does not take away the deeper pain in the economy in the form of a weak job market, dampened consumer sentiment, and the uncertain private investment scenario.