India’s Finance Ministry, in its March 2025 economic review, has sounded a cautionary note on the country's financial year 2026 growth outlook, stating that global uncertainties pose a significant risk to the economy, particularly in the context of private sector capital expenditure.

According to the review, prolonged geopolitical tensions and trade disruptions could lead businesses to delay or shelve investment plans, potentially impacting overall economic momentum.

Private Sector Capex at Risk Due to Prolonged Uncertainty

The Ministry observed that while trade exposure is a concern, the real threat lies in investor perception. A sustained atmosphere of uncertainty can create hesitation in capital formation decisions, especially by private enterprises, which form a crucial part of India’s investment cycle.

The review stated:

“More than trade, the perception of prolonged uncertainty may cause the private sector to put its capital formation plans on hold.”

This delay in private investment has the potential to disrupt the virtuous cycle of economic expansion, income generation, and job creation.

Call for Urgent Action by Policymakers and Industry

In a firm advisory, the ministry urged both the government and corporate sector to act urgently, highlighting the need for decisive and proactive measures to contain economic hesitations before they self-perpetuate.

“To guard against this risk, both companies and policymakers must act urgently to avoid making uncertainty feed upon itself,” the ministry stated.

It was emphasised that in volatile economic environments, every policy decision and business move carries amplified consequences, underscoring the need for timely execution.

India's Global Integration Increases Vulnerability

The review underscored India’s growing stature as the fifth-largest global economy, noting that its deep integration into international trade and finance makes it more susceptible to global shocks.

Spillover effects from conflicts, trade wars, or geopolitical realignments can ripple through Indian markets, affecting exports, import bills, and inflation dynamics, according to the report.

However, the Finance Ministry reiterated that India’s domestic market strength remains a powerful buffer and that capital formation has the potential to kickstart a self-reinforcing growth cycle.

“The domestic economy is large and capital formation can lead to a mutually reinforcing cycle of investment-income, growth-demand and additional capacity creation,” it noted.

Fiscal Prudence and Demand Resilience are Strengths

Despite external threats, India’s current economic outlook still shows signs of resilience, thanks to strong fiscal discipline, robust financial systems, and growing domestic demand. These factors are supporting steady growth in 2025, the review added.

Additionally, the consumption-driven recovery, aided by government schemes and infrastructure investments, provides a firm base, but external disruptions could still throw this recovery off balance.

Commodity Prices and Supply Chain Risks Highlighted

Another concern raised in the report is the upside risk to commodity prices, driven by ongoing or emerging trade tensions and geopolitical challenges. These disruptions could affect supply chains, raw material costs, and even result in higher inflation across sectors.

“Trade tensions and geopolitical risks pose upside risks to commodity prices and may put pressure on supply chains,” the ministry noted.

This can particularly impact sectors like manufacturing, infrastructure, and automotive, where input price volatility could dent profit margins and reduce investment appetite.

India’s Policy Opportunity Window

In a forward-looking section, the Finance Ministry emphasised that this period of uncertainty is also an opportunity for India to showcase policy decisiveness and economic resilience.

“In contrast to normal times, action and execution have greater impacts now. It is an opportunity not to be missed,” the review highlighted.

This statement reflects the government's belief that timely economic action, whether in the form of policy stimulus, ease-of-doing-business reforms, or infrastructure spending, can create a multiplier effect in the current environment.

Mutually Reinforcing Investment Cycle Can Be Triggered

The Finance Ministry laid particular stress on encouraging capital formation as a strategy to counterbalance global disruptions. A boost in investments could trigger a cycle of income generation, higher demand, and the creation of additional economic capacity.

In this context, the government has hinted at supporting industries through public infrastructure development, credit availability, and easing regulatory bottlenecks to revive private investment enthusiasm.

Balancing External Risks with Internal Stability

While the global economic landscape is unpredictable—with conflicts in Europe, Middle East tensions, and rising protectionism in various regions—the report expresses confidence in India's ability to maintain macroeconomic stability through strategic interventions.

The Ministry concluded that while the Indian economy is not immune to global risks, its internal strengths and policy adaptability can help mitigate shocks and preserve growth momentum.

The Upcoming IPOs in this week and coming weeks are  Wagons Learning, Srigee DLM, Manoj Jewellers.

The Current active IPO are Kenrik Industries,Arunaya Organics, Ather Energy, Iware Supplychain Services.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.