Indian Economy and International Status - Newspaper Summary

 The sources present a nuanced view of the Indian Economy and its International Status during October 20-21, 2025, highlighting both its inherent resilience and structural strengths, and the increasing pressures stemming from global geopolitical tensions, trade disputes, and currency volatility. Key aspects include efforts toward rupee internationalization, persistent trade challenges (especially concerning the US and Russia), robust domestic economic fundamentals, and India’s rising global role in the services sector.

1. Macroeconomic Resilience and Growth Drivers

The Reserve Bank of India's (RBI) "State of the Economy" report indicates that the Indian economy has exhibited resilience so far, driven by a focus on strong and durable macroeconomic fundamentals.

• Strong Fundamentals: India's economic health is underpinned by low inflation, robust balance sheets of banks and companies, adequate foreign-exchange reserves, and a credible monetary and fiscal framework.
• Growth Outlook: The Monetary Policy Committee resolution of October suggests that the growth outlook remains resilient, supported primarily by domestic drivers. Domestic structural reforms, including GST reforms, are helping to offset the drag caused by weakening external demand conditions.
• High-Frequency Indicators: High-frequency indicators point to resilient domestic economic activities, with a revival in urban demand and robust rural demand.
• Corporate Performance: Early corporate earnings for the July-September quarter (Q2FY26) were encouraging, with signs of improvement in revenues and profit growth. A common sample of 234 companies showed a 9.2% rise in sales and a 9.0% rise in net profit for the quarter ended September 30, 2025.

2. Global Headwinds and Vulnerabilities

Despite domestic strength, the sources caution that the Indian economy is not immune to global headwinds.

• Currency Pressure: The rupee remained under pressure during Samvat 2081 (the Hindu financial year), depreciating by 4.38 per cent against the dollar. This depreciation was primarily attributed to the rise in global trade tension.
• RBI Intervention: Amid the pressure, the RBI actively intervened, selling $7.6 billion worth of dollars in August 2025 (compared to $2.5 billion sold in July) and did not purchase dollars for the second consecutive month. This intervention was noted to have "contained the rupee from breaching [the] 89 per dollar mark". The outstanding net short dollar position in the rupee forward market fell further to $53.35 billion by the end of August.
• Foreign Investment Decline: Net foreign direct investment (FDI) turned negative in August 2025, due to moderation in inflows and an increase in repatriation. Outward FDI also declined in August, concentrated mainly in the financial, insurance, business services, and manufacturing sectors, with Singapore, the UAE, and the US being the major destinations.

3. International Trade and Geopolitical Tensions

Geopolitics, particularly involving the US and Russia, exerts significant pressure on India's international trade status.

US Trade Tensions and Russian Oil Purchases

US President Donald Trump reiterated that Prime Minister Narendra Modi told him India would stop buying Russian oil, warning that New Delhi would continue paying "massive" tariffs if it failed to do so.

• Tariff Threat: Trump claimed that half of the US's 50 per cent tariffs on Indian goods are in retaliation for Russian oil purchases, which the US government views as funding Russia's war in Ukraine.
• India's Stance: India's foreign ministry previously stated it was unaware of any conversation confirming a stop to purchases but emphasized that its main concern is to "safeguard the interests of the Indian consumer".
• Continuing Purchases: Indian sources indicated that refiners had already placed orders for November loading, suggesting any cut would likely only start appearing in December or January import numbers. Estimates suggest India's imports of Russian oil were set to rise about 20 per cent in October 2025.
• Trade Talks: Trade talks between India and the US are ongoing in a "congenial" manner.

India's Global Standing and Trade Agreements

• UK FTA: India's international status is enhanced by successful trade agreements. A majority of UK firms (72 per cent) now identify India as a key market for international growth, up from 61 per cent last year. This shift is attributed to the India-UK Comprehensive Economic and Trade Agreement, which is expected to be a "game-changer" by reducing entry barriers. Consequently, 73 per cent of UK firms without a current presence plan to enter the Indian market, reflecting India's "shift to the centre of global strategy conversations".
• Global Economy Comparison: The International Monetary Fund (IMF) expects India to surpass Japan as the world’s fourth-largest economy this year and overtake Germany to rank third by 2027–28. Globally, the IMF’s October World Economic Outlook talks about "a new global economic landscape slowly takes shape" amid rising protectionism and rising fiscal risks in advanced economies.

4. Internationalization of the Rupee

The RBI is taking deliberate steps toward gradually internationalizing the rupee.

• Objective: Internationalizing the rupee is vital for India's goal of becoming a "developed nation by 2047". Greater local currency use lowers risks and costs for companies, reduces the need for higher foreign exchange reserves, and makes the economy less vulnerable to external shocks.
• Policy Measures: Initial steps include establishing direct rupee reference rates that do not rely on a third currency like the US dollar for cross-reference. Reference rates are being established for the UAE dirham and the Indonesia rupiah, adding to existing links with the US dollar, Japanese yen, euro, and British pound.
• Conditions for Success: True currency power requires scale (which India is building, aiming for 7-8% sustained growth), stability (macroeconomic, financial, and political credibility), and liquidity.
• Different Path from China: Experts recommend India avoid China's approach of seeking internationalization while maintaining capital controls and a tightly managed exchange rate. India's currency lacks China's scale advantage (India accounts for about 3% of global trade versus China's over 12%). India’s best path forward involves gradually easing capital controls and embracing a genuinely flexible exchange rate, perhaps using GIFT City as a controlled experiment for an open capital account.

5. Services Export Leadership

India is solidifying its global position as a major services hub.

• Services Exports Growth: India is rapidly emerging as a global hub for services exports, growing at a Compound Annual Growth Rate (CAGR) of 14.8 per cent over the past three decades, outpacing goods exports (9.8 per cent CAGR).
• Global Rank and Contribution: India currently ranks 7th globally in services exports, holding a 4.3 per cent share. Telecom, IT, and business services contribute nearly three-fourths of India's total service exports.
• Technology Exports: Technology exports alone crossed $200 billion in FY25.
• Global Capability Centres (GCCs): India has emerged as the world's largest hub for GCCs. The number of GCCs is projected to increase from 1,700 in FY24 to 2,200 by FY30, employing up to 2.6 million professionals, with the market size expanding from $40 billion in FY19 to $100 billion by FY30.