Economy
Turbulence rocks global trade, but India is keeping its chin up
Summary
- India's favourable farm growth, extra time to negotiate a trade deal with the US, and the economy’s relatively lower export dependence than Asian peers mean global trade tensions will have little impact on the Union budget.
The Union government expects the turbulence from global trade wars to have little impact on the country's economic growth and budget calculations, according to an official assessment of India's growth scenario and the impact of the Trump tariffs. Thanks to a normal monsoon, a pause in US reciprocal tariffs and moderate oil prices, the economy is on track to meet growth projections in FY26, two people privy to the assessment said.
The finance ministry had projected a 10.1% economic growth in nominal terms, while the Economic Survey 2024-25 had predicted a 6.3-6.8% real gross domestic product (GDP) growth for FY26. With the growth projection remaining intact, the government’s fiscal calculations will stay as planned, said one of the persons quoted above, who spoke on the condition of not being named.
Since budget assumptions rest on nominal GDP growth and revenue buoyancy, any hit to growth projections in the wake of a global crisis can alter the course of spending. However, India's favourable farm growth, extra time to negotiate a trade deal with the US, and the economy’s relatively lower export dependence than Asian peers mean global trade tensions will have little impact on the Union budget, the people cited above said.
Projections unchanged
“We do not see a downside risk to growth projections," the first person cited above said.
The Centre expects gross tax revenue receipts of ₹42.7 trillion in FY26, up 10.8% from the previous year, suggesting a tax buoyancy of 1.07.
"India should be able to achieve a real GDP growth of about 6.5% and inflation of less than 4%, which will give us the budgeted assumption of 10%-plus nominal GDP growth. Once that comes, the budget aggregates can be met," said D.K. Srivastava, EY’s chief policy advisor. The impact of the contribution of net exports on India’s economic growth will be very small, said Srivastava.
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“With suitable monetary policy and fiscal measures, we should be able to neutralize any adverse impact on net exports and still be able to achieve 6.5% real GDP growth in FY26. On the monetary side, we have already initiated a rate reduction cycle, which I think should be continued till we reach a policy rate of 5-5.25%. On the fiscal side, we should continue with government investment in infrastructure," said Srivastava.
Rate cut and rains
Last week, the Reserve Bank of India (RBI) decided to reduce the policy repo rate by 25 basis points to 6%. It also revised its FY26 economic growth projection to 6.5%, down from its earlier forecast of 6.7%. This is still within the real GDP growth projection of 6.3-6.8% made in the latest Economic Survey.
On Tuesday, the national weather office said India will see above-normal monsoon this year, indicating potential benefits to agricultural output, consumption and overall economic growth. Last week, the US administration also paused the 26% reciprocal tariffs imposed on India earlier in the month and similar measures on several other countries for 90 days period to facilitate trade talks. Additional reciprocal tariffs on India now stands at 10%.
The Indian basket of crude oil has cooled in recent weeks, with the price hovering around $66.4 on Monday, down from the FY25 average of $78.56. Moderate oil prices in world markets benefits state-run oil retailers realizing their margins, and also for central and state governments realizing tax revenue from auto fuel.
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On 7 April, the Centre raised special additional excise duty on petrol and diesel by ₹2 each, but state-run fuel retailers adjusted prices so that there is no increase in retail prices.
Queries emailed to a finance ministry spokesperson on Monday seeking comments remained unanswered.
Public capex
A second person, who also spoke on the condition of not being named, said the government remains confident in the economy’s resilience and domestic growth drivers. Public capex will continue to power growth, which is projected at 6.3-6.8% in the Economic Survey, the person said.
“With strong public investment and resilient domestic growth drivers, India’s growth story remains firmly on track," the person added.
To be sure, the central government’s capital expenditure for FY25 is estimated to have met, or even modestly exceeded, the revised target of ₹10.2 trillion, going by the government’s initial assessment. This is supported by an accelerated deployment of funds in the latter half of the fiscal year. This momentum is expected to carry forward in FY26.
And read | Fall in Q1 GDP growth no cause for alarm, say experts, predict 7% growth in FY25
India’s economic growth is expected to remain resilient during FY26, supported by sustained government spending and a potential revival in private investments, rating agencies said in their FY25 rating assessments released recently, but warned of risks to exports from a widening trade war.
India Ratings & Research, a Fitch Group company, said it expects the economy to grow at 6.6% in FY26, but warned that rating actions could moderate during the fiscal year.
However, Moody’s Analytics last week trimmed its calendar year 2025 growth forecast for India to 6.1%, lowering it by 30 basis points from its March projection, in response to US tariffs.
And read | Trump’s reciprocal tariffs: India braces for economic ripples
