India's Economic Performance and Outlook, in the context of the Global Economic and Political Landscape (October 2025), is generally characterized by resilience and robust domestic momentum despite persistent external headwinds such as global geopolitical turbulence and US tariffs.
India's Economic Performance and Outlook
Growth Forecasts and Resilience
S&P Global Ratings recently upgraded India's sovereign rating to 'BBB' stable, recognizing the country's economic resilience and stable policy framework.
- S&P Forecasts: S&P expects India’s GDP growth to be about 6.5% this year, rising to around 7% over the next two years. This growth rate is considered impressive for one of the world's top five economies.
- IMF Forecasts: The International Monetary Fund (IMF) raised its growth forecast for India for 2025-26 to 6.6%, benefiting from stronger Q2 growth and GST support. However, the IMF lowered the subsequent year's forecast to 6.2%, assuming the recently imposed US 50% tariffs remain in place.
- Long-Term Goals: Achieving the ambitious "Viksit Bharat" goal (developed nation by 2047) requires India to sustain growth upwards of 8% over the next 20 years.
Inflation and Monetary/Fiscal Policy
India is currently experiencing a low inflation environment combined with recent fiscal stimuli.
- Inflation: Retail inflation has eased significantly, hitting a 99-month low of 1.5% in September. However, core inflation surged to a two-year high of 4.43% due primarily to a sharp rise in gold and silver prices.
- Monetary Policy: While low inflation typically provides headroom to support growth, an external member of the RBI's MPC suggested that a further rate cut risks an "overdose," as the effects of earlier policy actions (100 bps repo rate cuts and 100 bps CRR cuts) are still playing out. The low level of inflation is also noted as potentially being "bad for the top and bottom lines of business," impacting investment and employment decisions. The RBI is expected to cut rates by 25 basis points by year-end.
- Fiscal Stimulus: Income tax reliefs and GST rate rationalization announced over the year are designed to place mass consumer goods within affordable limits and are expected to stimulate consumption, contributing positively to the FMCG sector and the wider economy.
Domestic Demand and Sectoral Momentum
Domestic consumption is a major driver, providing the economy with adequate "ballast" against external uncertainty.
- Consumption Boom: Early indicators suggest the festive consumption spurt in October is likely to set a record unlikely to be broken in the near future. Investors show confidence in India’s consumption story, evidenced by the F&B and hospitality sector gearing up for about ₹9,000 crore in IPOs.
- Credit Growth: The festive shopping spree is being driven by a surge in microloans (interest-free EMIs) used even for small-ticket items like hair dryers, highlighting growing reliance on digital credit in tier-2 and tier-3 cities. However, this growing reliance on credit for low-cost purchases raises concerns regarding potential reckless spending and future defaults.
- Technology and IT: India's top-tier software exporters continue to report sustained deal wins despite client caution driven by US tariffs and geopolitical uncertainty. Infosys and LTIMindtree beat Q2 estimates, primarily driven by strong performance in the BFSI sector. Wipro, however, posted lower-than-estimated profit, impacted by a one-off customer bankruptcy and tariff uncertainty.
- Capital Markets: The domestic stock indices climbed 1% on expectations of a trade truce with the US and slowed selling by overseas investors. The IPO market remains "on fire," led predominantly by small and mid-sized issues. Quick commerce platform Zepto closed a $450 million funding round at a $7 billion valuation, reflecting high investor appetite for rapid scale growth.
Global Economic and Political Landscape Context
The outlook for India is intertwined with global risks, particularly centered on US trade policy, geopolitical rivalries (US-China, Russia-Ukraine), and global financial stability concerns.
Geopolitical Risks and Trade Friction
Geopolitics remains a key global risk, but S&P views it as one of several manageable headwinds for India, rather than a defining threat.
- US Tariffs on India: The impact of punitive tariff barriers is a notable headwind. India’s exports to the US declined 11.9% year-on-year in September due to the full effect of the 50% tariffs imposed by the US. Uday Kotak observed that India holds limited leverage in its tariff negotiations with the US, which presents a challenge for the country's negotiating ability.
- Russian Oil Purchases: US President Trump claimed PM Modi assured him India would halt Russian oil purchases, a claim the Ministry of External Affairs (MEA) explicitly disputed, stating no telephonic talks had occurred that day. Russian crude oil remains the most cost-effective option for India. Indian officials noted that halting imports over 2–3 months would likely cause global prices to rise only by $2–$3 a barrel, though it would cause domestic refiners to lose discounts.
- Trade Liberalization: India is actively engaged in dialogue for FTAs with developed nations including the US, EU, and Oman. Negotiators have intensified efforts to finalize the FTA with the EU, focusing heavily on resolving the contentious issue of rules of origin.
Global Financial Stability and Capital Flows
- Global Debt: Since the global financial crisis, there has been a gradual erosion in the credit quality of large sovereigns due to rising debt levels and fiscal deficits.
- Capital Movement: With potential US rate cuts accelerating later this year, India is emerging as a key investment destination as capital rotates out of the US into riskier emerging markets. Foreign portfolio investors (FPIs) have been net buyers in five of the last eleven sessions in October.
- Currency and Intervention: The rupee closed at its highest level in a month, bolstered by a softening dollar and significant RBI intervention (estimated at $3-$5 billion sold in spot and forward markets on Wednesday) intended to curb abnormal volatility and push back against speculators.
US-China Rivalry in Technology and Finance
The US-China geopolitical dynamic affects supply chains and financial markets globally.
- Supply Chain Concerns: Concerns persist in India regarding reliance on imported components, particularly from China, for sectors like electric vehicle (EV) chargers, where 80–85% of components are imported. China has imposed export restrictions on critical EV components like rare earth magnets. India is responding by nudging the private sector to set up domestic processing units for rare earths and critical minerals.
- Financial Dynamics: American bankers are playing a significant role in helping Chinese companies (including battery giant CATL and auto firm BYD) raise billions by listing in Hong Kong, raising national security concerns in Washington. Hong Kong's stock exchange is currently the hottest globally for new listings.
- AI and Power Demand: The global race for AI dominance is leading to massive power shortages in the US, forcing tech giants like OpenAI and xAI to construct their own gas-fired power generation facilities, reshaping the American power landscape. China is noted to be investing twice as much as the US this year in power plants, storage, and grid infrastructure.
Structural Requirements and Key Drivers
To sustain high growth and thrive in the volatile global landscape, India requires focused structural changes.
- Need for Reforms: To achieve growth upwards of 8% by 2047, India requires strong structural reforms beyond just a stable macroeconomic framework. The IMF stressed the need for trade liberalization, flexible labour laws, and regulatory streamlining ("regulatory cleanup") to unlock private sector potential.
- Infrastructure Investment: The unexpected explosive growth of AI-driven data centers globally has caused supply constraints for high-voltage transformers and other key components, leading to long lead times globally. Hitachi Energy CEO emphasized that capacity expansion is the "only real solution" to this bottleneck, noting that India is a bright spot with policies supporting renewable energy integration.
- Self-Reliance and Technology: HAL's transformation of its Nashik facility from producing Soviet-origin fighters to manufacturing the indigenous LCA Tejas symbolizes a step toward self-reliance in military aviation. Uday Kotak highlighted that India needs to move towards achieving cutting-edge technology and creativity to build global consumer brands and increase its negotiating leverage on the world stage. The growth potential will require mobilizing larger pools of public and private capital for physical and digital infrastructure goals.
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