Despite the volatile global environment because of the US trade and tariff policies, domestic factors are giving policymakers a reason to smile and expectations are that the Indian economy may still be able to stay on track for GDP growth close to 6.5%.
The optimism stems from the forecast of a normal monsoon, lowering inflation, especially of food items as well as lower crude oil prices.
Officials point out that much of India’s economy is still domestic driven and demand remains strong. The forecast of a normal monsoon this year has also boosted expectations that rural demand will remain strong.
Further, inflation has been on a downward trend giving consumers some more discretionary income and respite from high prices, they pointed out. Lower crude oil prices also augur well for the fiscal and will help keep inflationary pressures at bay, they noted.
“While trade and tariff issues are, of course, a significant source of concern and tension, the domestic economy remains strong,” they point out, but underlined that it is still early days to assess how the US trade and tariff policies will play out and impact the global economy.
The economy grew by 6% in FY25 and the Economic Survey 2024-25 had projected India’s GDP growth at 6.3-6.8% this fiscal. The Reserve Bank of India too has estimated that the economy will grow by 6.5% this fiscal.
“The weather forecast agencies, IMD and Skymet, have forecast above normal and normal rainfall for 2025, respectively, which bodes well for the agriculture sector and inflation. Consequently, rural consumption should remain buoyant,” noted a report by Macquarie Capital.
CPI inflation moderated to 3.34% in March, a 67-month low, due to a sharp correction in food inflation. “With normal monsoons expected, we believe the RBI’s forecast of 4% CPI inflation for FY26 could be met, with some economists expecting CPI to fall a tad below 4%. Inflation is likely to remain below 4% for the first three quarters of FY26, according to RBI,” the report further noted.
On Thursday, Fitch Ratings cut India’s GDP growth estimate by 10 basis points to 6.4% for the current fiscal due to concerns of a ‘severe’ escalation in the global trade war.
