India's economic resilience is expected to continue, with benign domestic inflation acting as a shield against global economic headwinds. Multiple reports suggest that India is well-positioned to navigate these challenges and maintain its status as a key driver of global growth.
Several factors contribute to this positive outlook. India's domestic growth is robust, supported by relatively low inflation. This allows the Reserve Bank of India (RBI) to implement policies that stimulate growth, such as lowering the repo rate and the Cash Reserve Ratio (CRR). Furthermore, strong Foreign Direct Investment (FDI) inflows continue to bolster the economy.
The RBI's research indicates that India is set to strengthen its position as a key global growth driver amidst trade disruptions. CPI inflation for the financial year 2025-26 is projected at 4 per cent, with forecasts of 3.6 per cent for Q1, 3.9 per cent for Q2, 3.8 per cent for Q3, and 4.4 per cent for Q4. This controlled inflation outlook reinforces expectations of further policy rate cuts in addition to the 50 basis points repo rate reduction already implemented since February. The prospect of a strong rabi harvest and forecasts of an above-normal monsoon are expected to further strengthen rural consumption and keep food inflation in check.
International organizations also share this optimistic view. The International Monetary Fund (IMF) projected in April that India would remain the fastest-growing major economy in 2025 and is likely to surpass Japan this year to become the world's fourth-largest economy. India is increasingly positioned as a "connector country" capable of playing a key intermediary role in sectors like technology, digital services, and pharmaceuticals amid global trade realignments and industrial policy shifts.
Despite this positive outlook, some challenges remain. RBI economists have cautioned that upcoming tariff deadlines and geopolitical tensions could negatively impact the global economy. Factors such as global financial market volatility, trade fragmentation, supply-chain disruptions, and climate-induced uncertainties pose downside risks to growth and upside risks to inflation. Shifts in tariff policies may also cause sporadic volatility in financial markets, and exports may face headwinds due to inward-looking policies and tariff wars.
Nevertheless, India's trade pacts and strong services exports and inward remittances should ensure that the current account deficit remains manageable. The RBI has expressed greater confidence in achieving a durable alignment of headline inflation to the 4% target over a 12-month horizon.
Recent data also supports this positive narrative. India's economy demonstrated resilience with a 7.4% GDP expansion in Q4 FY25, bringing the fiscal year's growth to 6.5%. This growth was fueled by the services and construction sectors, while inflation eased to 3.2% in April. The government maintained its fiscal deficit at 4.8% of GDP, supported by robust corporate tax revenues and increased capital spending.
Looking ahead, while growth for FY26 is projected to be around 6.2%, it still positions India as the fastest-growing major economy globally. This moderation is influenced by mixed consumption signals and softening external demand. However, sentiment remains positive, supported by rising rural wages and easing inflation.
In conclusion, despite potential global headwinds, India's benign inflation, strong domestic fundamentals, and supportive monetary and fiscal policies provide a buffer, allowing the country to maintain its growth trajectory and strengthen its position in the global economy.
