India poised for growth amid global uncertainty, says finance ministry

New Delhi: Despite global turbulence, India’s economy remains resilient and a prime investment destination, with structural reforms and skill-driven policies poised to boost investor confidence, drive sustained growth, and enhance medium-term prospects, the finance ministry said in its April economic review released on Tuesday.

Rising GST collections, higher e-way bill generation, improved consumer sentiment, and strong growth in services indicated strengthening economic activity, while rural demand remained steady with increased household consumption, the monthly report added.

Trade challenges ahead

However, the document, prepared by the finance ministry’s department of economic affairs, flagged rising challenges, particularly on the trade front.

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It emphasized heightened uncertainty in India’s export outlook following the US’s imposition of a 26% reciprocal tariff on Indian imports, effective April 2025. Although a 90-day suspension is currently in place pending bilateral negotiations, the possibility of renewed trade barriers remains a key external risk.

"Private sector capital expenditure could lag behind with firms adopting a more cautious stance amid global uncertainty and tighter financial conditions," the review said.

"A successful US-India trade agreement could flip current headwinds into tailwinds, opening up new market access and energising exports," it added.

On 16 May, Mint reported that India and the US are likely to sign their long-awaited bilateral trade agreement before 8 July when the 90-day pause on the US’s reciprocal tariff action expires.

The urgency arises from the US reciprocal tariff framework announced on 2 April, which granted a 90-day pause for negotiations with key partners, including India.

Reaching a deal before the 8 July deadline could help India avoid steep tariffs, reset trade ties on firmer ground, and offer much-needed clarity to industry and markets.

The review further notes that global financial conditions remain fragile, with the pause in US-China tariffs, the pending US Budget Bill, and market reactions to Moody’s recent downgrade of the US sovereign credit rating likely to influence investor sentiment worldwide in the months ahead.

Meanwhile, the review said that India’s economy, underpinned by strong domestic fundamentals and prudent macroeconomic management, saw robust private consumption, led by a rural demand rebound, alongside healthy services exports, in April.

While the expanding services sector has helped offset the softness in merchandise exports, the Indian rupee has held relatively stable, supported by ample foreign exchange reserves that cushion the economy from global volatility, it said.

Government capital expenditure has been instrumental in sustaining economic activity, providing a vital buffer against external pressures, it added.

The review noted that recent direct tax exemptions, fiscal measures, and Reserve Bank of India's rate cuts are expected to further stimulate consumption and investment.

"These could accelerate the recovery and lift growth towards the upper end of forecasts of 6.3% to 6.8%, given in the latest Economic Survey," it added.

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India’s economic growth likely accelerated to 6.9% in the March quarter from 6.2% in the previous quarter, driven mainly by strong agricultural activity and service sector exports, according to a median estimate of 22 economists polled by Mint.

This would bring full-year GDP growth for 2024-25 to 6.3%, below the National Statistical Office’s second advance estimate of 6.5% released in February.