New Delhi: 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, a finance ministry report said on Tuesday.
India’s long-term growth is driven by macroeconomic stability, a resilient external sector, declining fiscal deficit, easing inflation, improving employment prospects, and high consumption expenditure, the March edition of Monthly Economic Review released by Department of Economic Affairs said.
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.
Nevertheless, it said, while geopolitical uncertainties present challenges for India, too, they also offer an opportunity to strengthen its position in international trade and manufacturing by leveraging its comparative advantages in select goods and services.
With renewed and sustained focus on geopolitical developments, India can mitigate these risks and capitalise on emerging opportunities through strategic trade negotiations, domestic reforms and manufacturing investments, it said.
“That said, uncertainties stemming from global developments constitute a key risk for the growth outlook for FY26. More than trade, the perception of prolonged uncertainty may cause the private sector to put its capital formation plans on hold. The private sector and policymakers must be mindful of this risk and act urgently to avoid making uncertainty feed upon itself,” it said.
The domestic economy is large and capital formation can lead to a mutually reinforcing cycle of investment-income growth-demand growth-additional capacity creation, it said.
“In contrast to normal times, action and execution have greater impacts now. It is an opportunity not to be missed,” it said.
With the government’s strong commitment to fiscal consolidation, the report said, the availability of domestic savings to finance private sector investment has improved.
Going forward, it said, 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.
As a result, fiscal discipline is expected to enhance the momentum of economic growth, it stressed.
Observing 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.
Several outlook surveys reflect optimism regarding employment conditions in the coming year, although they may have been conducted before the fresh round of tariffs announced in April, it said.
Meanwhile, it said, investment activity has gained momentum and is expected to strengthen further, driven by sustained capacity utilisation, the government’s continued emphasis on infrastructure development, healthy balance sheets of banks and corporates, and easing financial conditions.
While merchandise exports may face pressure due to global uncertainties, services exports will likely maintain their resilience, it said.
Nonetheless, it said, risks from ongoing global trade disruptions warrant close monitoring and diversification into various hitherto unexplored markets.
For the private sector, this is the time to invest in product differentiation and quality as easy pickings recede into history, it added.
On inflation, the report said, with uncertainties around the rabi crop largely resolved, and the second advance estimates pointing to record wheat output and higher pulse production, food prices are expected to soften further.
This disinflationary trend is reinforced by robust kharif arrivals and a sharp decline in inflation expectations, it said, quoting recent RBI surveys.
Additionally, it said, falling crude oil prices also contribute to this positive outlook.
However, it said, global uncertainties, such as trade tensions and geopolitical risks, could disrupt supplies or cause prices to rise or both.
