Global Events Impacting India’s Economic Outlook in 2025

Source: The post Global Events Impacting India’s Economic Outlook in 2025 has been created, based on the article “In 2025, the hurdles to India’s growth” published in “Indian Express” on 19th December 2024

UPSC Syllabus Topic: GS Paper3- Economy

Context: The article discusses India’s economic outlook in 2025, highlighting challenges like slow growth, fiscal deficit, and global volatility. It questions the effectiveness of government policies like the PLI scheme and trade strategies, and emphasizes the need for private sector investment and export growth.

For detailed information on Concerns about the Indian economy amid global uncertainties read this article here

What is the India’s economic outlook in 2025?

1. Economic Growth: India may surpass Japan to become the fourth-largest economy, reaching a $4 trillion GDP. However, nominal growth is expected to stay below 10% for the third consecutive year, down from the decade average of 11%.
2. Fiscal Challenges: The fiscal deficit is projected to fall from 4.9% to 4.5% of GDP, signaling contractionary fiscal policies. Rising committed expenditures, like the Eighth Pay Commission, could strain finances.

How Are Global Events Impacting India?

1. US Economic Policies: Donald Trump’s potential tariffs on Canada, Mexico, and China could create global volatility, affecting trade and investments.
2. Currency Pressures: Higher US interest rates and a stronger dollar are testing the RBI’s ability to defend the rupee. Inflation moderation pressures RBI to cut rates, risking further currency depreciation.
3. Trade Agreements: India’s inconsistent trade approach, such as avoiding RCEP but signing deals with Australia and UAE, shows hesitancy. Pending FTAs with the UK and EU highlight missed opportunities amid China plus one shifts benefiting others.
4. Private Sector Investments: Global uncertainties have limited private investment growth, despite government initiatives like the PLI scheme, which disbursed only Rs 32,620 crore over four years, with significant funds going to mobile phones and semiconductors.
5. Geopolitical Influence: A $4 trillion economy could strengthen India’s global standing, but uncertainties dampen this potential.

What Are the Challenges Ahead?

1. The Eighth Pay Commission and rising committed expenditure could strain public finances.
2. The upcoming 16th Finance Commission will need to balance competing fiscal interests, impacting Centre-state relations and election strategies.
3. Reduced elections in 2025 (only Delhi and Bihar have elections) may allow the government to focus more on policy reforms.

Question for practice:

Discuss how global economic events and domestic fiscal challenges are impacting India’s economic outlook in 2025.