Forecasting India's Economic Momentum Amid Global Challenges

Despite global headwinds, India's economy is set to grow by 6.8% in FY 2025-26. Driven by robust economic indicators like increased air traffic and GST collections, strong domestic demand will sustain growth. However, tariff wars could pose risks. RBI rate cuts and policy decisions will be key focus areas.

According to a new report by Bank of Baroda, the Indian economy is projected to experience a growth rate of 6.8 percent in the 2025-26 financial year, despite a subdued growth in the current year. This optimism is bolstered by high-frequency indicators such as robust air passenger traffic, increased services PMI, and greater GST collections, guiding a nominal GDP growth to approximately 10.5 percent.

The resilience of India's economy reflects in a strong festive demand and a steady rise in economic activity, particularly evident in the uptick of high-frequency indicators in the third quarter of FY 2025. Critical to maintaining this growth momentum will be investment and consumption; however, potential downward risks from global headwinds, including a tariff war posed by the incoming U.S. administration under President Trump, could undermine this progress.

Domestically, the focus will also shift towards significant economic events such as the Union Budget, the Reserve Bank of India's monetary policy decisions, and corporate performance in forthcoming quarters. Anticipation mounts for a possible rate cut by the RBI in February 2025, which could further support economic growth. Navigating these domestic and global challenges will be essential for sustaining India's growth trajectory in the upcoming year.

(With inputs from agencies.)