NEW DELHI: Geopolitical tensions, increasing uncertainty around trade policies, volatility in international commodity prices and the financial market pose significant risks to the outlook for growth next year, a finance ministry report said on Wednesday.
It said that adding to the cloud over global prospects is the inadequate trust in key institutions and lower optimism about the future in developed countries, as per the 2025 Edelman Trust Barometer.
The economy is forecast to grow 6.5% in 2024-25 and agencies expect it to maintain the same growth rate amid a challenging global outlook.
The report said global trade continues to be affected by uncertainty in the policy environment. The Global Trade Policy Uncertainty Index rose to a record high of 237.4 in the fourth quarter of 2024. Tariff-related developments in multiple countries have heightened trade-related risks, affecting investment and trade flows globally.
But the report asserted that domestic private sector capital formation, focused on India’s solid fundamentals and economic prospects, will be an important driver of economic growth in FY26.
“Supportive fiscal measures, accommodative monetary policy, and the Union Budget’s focus on longer-term development drivers and reform will bolster domestic economic resilience amidst significant global uncertainties,” said the finance ministry’s monthly economic report for Feb.
The report also said that if the private sector were to invest in the economy, banking on the resilience of the Indian economy and its steady growth outlook, it would overpower the risks to the growth outlook considerably.
“It is essential that the industry recognises the mutual endogeneity of its investment spending and consumption demand. The proposed changes in the personal income tax structure are expected to improve the disposable incomes of the middle class and their consumption,” said the report. The 25-basis point policy rate cut in Feb, as part of a more accommodative monetary policy and enhanced liquidity provisions, can also bolster the growth momentum.
The report said the Budget’s focus on longer-term development drivers and reforms, anchored around the ambition of Viksit Bharat, adds to the confidence in domestic economic resilience amidst global uncertainties.
