India: A bright spot in a troubled world

The country's real GDP growth of ~6.5 percent for FY26 positions it as a leading driver of global economic expansion, but the forecast for nominal numbers has been sub-10 percent for two years in a row

  • Published:
  • 10/06/2025 11:00 AM

India’s real GDP growth of ~6.5 percent for FY26 positions the country as a leading driver of global economic expansion and outpacing global peers like China (4.6 percent in 2025) and the global average (3 percent). Image: Shutterstock

The OECD (Organisation for Economic Cooperation and Development) became the latest of multilateral forecasters to have downgraded global growth and trade forecasts. It forecasts that global growth will decline from 3.3 percent in 2024 to a modest 2.9 percent in 2025 and 2026, citing rising global uncertainty and trade barriers. In April, the IMF (International Monetary Fund) too had revised global GDP growth downward by 50 bps compared to the projections released this January. The IMF cited escalating trade tensions as the global economy enters a new era. 

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From a relative perspective, India’s real GDP growth of ~6.5 percent for FY26 positions the country as a leading driver of global economic expansion and outpacing global peers like China (4.6 percent in 2025) and the global average (3 percent). As per IMF, India is set to become the world’s fourth-largest economy by the end of 2025, surpassing Japan in terms of nominal GDP. 

As advanced economies in particular face slowdowns, India’s growth contributes significantly to global GDP, with the World Bank noting that countries like India are critical for global stability. India’s increasing share in manufacturing and services, alongside 14 free trade agreements, enhances its role in global value chains. In fact, global five-year-ahead growth projections from the IMF WEO (world economic outlook) have declined from a peak of 4.9 percent in the April 2008 WEO for growth in 2013 to 3 percent for growth in 2028: The lowest projection since 1990. If the IMF forecasts are true, India will remain the fastest-growing economy of its size, making the country the fastest in 11 out of 15 years since 2014 IMF forecasts. 

What supports such optimism in the immediate term? The Reserve Bank of India (RBI) last week surprised everyone with a 50 bps repo rate cut along with a 100 bps CRR (cash reserve ratio) cut that should help consumption and capex albeit with a lag. 

Global trade disruptions notwithstanding, the domestic economic activity has been exhibiting resilience lately. On the demand side, private consumption remains healthy with prospects of a gradual rise in discretionary spending and rural demand. The Rs1 lakh crore tax cut announced in FY26 Union Budget will also support household spending. With the monsoon forecast as above normal and water reservoir levels remaining healthy, agriculture sector prospects remain strong. Industrial investment activity is reviving as reflected by high-frequency indicators. The healthy balance sheets of banks and corporates combined with government’s continued thrust on capex should further revive investment activity. The services sector is expected to maintain steady momentum as seen from robust PMI (purchasing managers’ index) services. Sustained buoyancy in services activity should nurture revival in urban consumption.

More importantly, macroeconomic stability, with the RBI’s 4 percent inflation target, low CAD (current account deficit) and commitment to fiscal consolidation and a target of reducing the debt-to-GDP ratio to 50 percent (±1%) by 2030-31 add to the suppleness of the India story. 

Also read: The big reset: RBI front-loads rate cuts to fire up economy

However, there is yet another important dimension and metric of growth, that is nominal GDP growth, which measures the total value of goods and services produced in an economy at current prices. It is as critical an indicator for assessing economic health and guiding policy decisions as the real GDP growth. Note that nominal GDP growth has been forecast to remain sub-10 percent for two years in a row now. This can have myriad implications. Unlike real GDP, it includes inflation, providing a raw measure of economic activity. Analysing nominal GDP growth is critical for understanding fiscal deficits, debt dynamics, trade balances, corporate performance and earnings growth. 

Nominal GDP growth directly influences a country’s fiscal health. Fiscal deficit—the gap between government revenue and expenditure—is often expressed as a percentage of nominal GDP. A lower nominal GDP growth reduces the denominator, raising the deficit-to-GDP ratio, which signals negatively on fiscal sustainability. Similarly, public debt sustainability is assessed using the debt-to-GDP ratio. Low nominal GDP growth raises this ratio by lowering the economy’s capacity to service debt, assuming debt growth remains controlled. For policymakers, understanding nominal GDP trends helps in budgeting and managing borrowing needs effectively.

It also reflects domestic demand and production, which impact trade balances. A slowing nominal GDP often signals low consumer and business spending, curtailing imports. Analysing nominal GDP helps policymakers and businesses anticipate trade deficits or surpluses, informing trade policies and currency management. For example, robust nominal growth may strengthen a currency, affecting export competitiveness. 

Importantly, for corporations, nominal GDP growth is a proxy for market demand and pricing power. Falling nominal GDP often correlates with lower consumer spending and inflation, constraining firms in increasing revenues through higher sales volumes or prices. Sectors like retail, manufacturing and services are directly impacted from this growth, driving top-line performance. Companies use nominal GDP trends to forecast demand, plan investments and set pricing strategies. Thus, falling nominal GDP growth may signal lower earnings growth and hence lower returns for equity holders, and may also constrain the rise of country’s weight in benchmark EM Indices.

(The writer is group chief economist, L&T)

Last Updated :

June 10, 25 11:48:52 AM IST