Uncertainties stemming from global developments pose a key risk for India’s growth outlook for FY26, the Finance Ministry said in its monthly economic review for March released Tuesday, adding that more than trade, the perception of prolonged uncertainty may cause the private sector to put its capital formation plans on hold.
The Ministry said that the private sector and policymakers must be mindful of this risk and act urgently to avoid making uncertainty feed upon itself. “The domestic economy is large and capital formation can lead to a mutually reinforcing cycle of investment-income growth-demand growth-additional capacity creation. In contrast to normal times, action and execution have greater impacts now. It is an opportunity not to be missed,” the Ministry said.
Overall, the outlook for the Indian economy is positive, it said. “The economy continues to demonstrate resilience in the face of a turbulent global environment, with the growth momentum supported by easing inflationary pressure, growing consumption demand, fiscal discipline, labour market stability and a resilient financial sector,” it said.
While merchandise exports may face pressure due to global uncertainties, services exports will likely maintain their resilience, it said. However, risks from ongoing global trade disruptions warrant close monitoring and diversification into various hitherto unexplored markets, it said. For the private sector, this is the time to invest in product differentiation and quality as easy pickings recede into history, it said.
As a major emerging market economy, India, however, faces distinct challenges and opportunities amid escalating global geopolitical tensions, the Ministry said. The country remains vulnerable to spillover effects from international geopolitical events as the world’s fifth-largest economy with substantial integration into global trade and financial networks.
Private capital formation holds the key to the sustainability of this favourable constellation, it said, adding that public policy and regulatory measures can both facilitate and nudge the private sector to do its part. With the right strategies in place, continued domestic reforms, and a strong focus on infrastructure development and job creation, the economy can demonstrate resilient growth despite global uncertainties, it said.
The Ministry reiterated the government’s commitment to fiscal consolidation, stating that the availability of domestic savings to finance private sector investment has improved. Going forward, the planned reduction of public debt to GDP will create additional domestic resources for private investment, especially as states also work to decrease their debt burdens, and in turn, fiscal discipline is expected to enhance the momentum of economic growth, it said.
“If states are able to reduce their debt burden going forward, there would still be a higher availability of domestic savings for private investment. While the underlying economic conditions vary across states, a concerted effort to improve the quality of expenditure and rein in deficits by states is crucial to achieve medium-term fiscal consolidation and support macroeconomic growth and stability,” it said.
Noting that the prospects of the agriculture sector remain bright, supported by healthy reservoir levels and robust crop production in the current financial year, it said manufacturing activity is showing signs of revival with robust business expectations. Services sector activity continues to be resilient.
On the demand side, it said, the favourable outlook for the agricultural sector augurs well for rural consumption, which remains robust. Urban demand is showing steady improvement, supported by rising discretionary spending.
