Despite growing uncertainty in global trade, largely due to the US tariff policies and protectionist stance, India's domestic economic fundamentals are providing a solid base for maintaining strong growth. Several recent reports and government assessments indicate that GDP growth could remain close to 6.5% in the current fiscal year.

Key Drivers Supporting India's Economic Growth

The Indian economy, while not immune to global trends, is significantly domestic-driven. Government officials have underlined that robust internal demand, coupled with favourable monsoon forecasts, cooling inflation, and low crude oil prices, are working in tandem to sustain growth momentum.

According to government data, the economy grew by 6% in FY25, and the Economic Survey 2024–25 projected GDP growth between 6.3% and 6.8%. The Reserve Bank of India (RBI) has maintained a 6.5% growth projection for FY26, reinforcing the idea that India remains on track despite external volatility.

Weather and Rural Economy: Key Growth Enablers

A major contributing factor to this optimism is the forecast of normal monsoons by India Meteorological Department (IMD) and Skymet, with the former expecting above normal rainfall. This bodes well for the agriculture sector and is expected to boost rural demand, which forms a substantial portion of the Indian consumption story.

In its latest economic outlook, Macquarie Capital highlighted:

“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.”

A strong agricultural output will likely lead to increased rural incomes, further strengthening consumption-led growth and helping balance out any global trade disruption.

Falling Inflation and Crude Oil Prices

India’s retail inflation has also seen a significant downward trend. Consumer Price Index (CPI) inflation dropped to 3.34% in March 2025, marking a 67-month low, primarily due to a correction in food prices.

This trend is likely to continue, with Macquarie noting that:

“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%.”

The RBI expects CPI to remain under 4% for the first three quarters of FY26, providing relief to consumers and potentially opening the door for policy easing, if necessary.

In addition to food prices, global crude oil prices have also softened. As a major importer of oil, India benefits from lower oil prices which ease fiscal pressures and reduce input costs across industries. This supports both consumer demand and industrial production.

Domestic Resilience Amid Global Uncertainty

While the global economic environment has turned volatile, especially with the resurgence of US tariff threats under Donald Trump’s policy rhetoric, India’s economy continues to show resilience. Policymakers acknowledge the risk but stress that it’s still too early to assess the full impact of a global trade war.

“While trade and tariff issues are, of course, a significant source of concern and tension, the domestic economy remains strong,” officials emphasised.

India’s economic insulation comes from its strong service sector, infrastructure investment, and manufacturing expansion under schemes like PLI (Production Linked Incentives). This gives the country a structural edge over more export-dependent emerging markets.

International Agencies Remain Cautious

Not everyone shares the same optimism. Fitch Ratings on Thursday cut its GDP growth estimate for India to 6.4%, trimming 10 basis points from its previous forecast. The reason? Rising concerns of a ‘severe’ global trade war, particularly involving the US and China.

Still, even this downward revision keeps India firmly in the top growth bracket globally, especially among large economies.

RBI’s Balancing Act

The RBI, while maintaining a neutral stance on interest rates, has been keenly observing both domestic inflation and international economic signals. With CPI under control and oil prices low, the central bank may have room to support liquidity and boost growth, should external shocks escalate.

Importantly, the RBI's cautious optimism reflects a macro environment that’s stable, despite external tremors. The central bank's communication has focused on data-driven decision making, suggesting any stimulus will be targeted and timely.

Looking Ahead: Watch Monsoon, Inflation, and Trade War Developments

India’s growth trajectory for FY26 is expected to hold as long as key domestic indicators—especially monsoons, inflation, and consumption—remain stable. If global trade tensions do not escalate drastically, India may even edge closer to the upper end of the 6.3–6.8% forecast range.

However, policymakers and market watchers will continue to monitor:

• The trajectory of US tariffs and whether they trigger retaliatory actions from China or Europe.

• Food inflation trends, particularly during the kharif season.

• Energy prices, which play a pivotal role in shaping both fiscal balance and consumer sentiment.

Conclusion

In a year marred by international economic friction, India’s growth story remains intact, thanks to strong domestic demand, a resilient rural economy, and supportive macroeconomic conditions. While global trade wars could pose headwinds, India is entering FY26 with strong fundamentals and policy flexibility.

The current outlook is cautiously optimistic. If inflation remains contained, monsoons stay favourable, and external shocks are limited, India could once again outperform other emerging markets—and even surprise on the upside.

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