Mixed Forecast for India’s Growth – Asia Law Portal

The monsoons have arrived in most parts of India inviting grey gloomy skies with the smiles in the agricultural and related sectors being the silver lining. This corresponds to the gloomy lower economic growth forecast for India which also comes with a silver lining of retaining the fastest growth rate among the world’s largest economies. The long term growth projections marginally increased. Further, regional trade talks progressed though quite slowly.

World Bank – The World Bank recently released its flagship report, Global Economic Prospects June 2025 edition. As per the report, India is projected to maintain the fastest growth rate among the world’s largest economies, at 6.3 percent in FY 2025/26. Nevertheless, the forecast for growth in FY2025/26 has been downgraded by 0.4 percentage point relative to January projections (as reported by Asia Law Portal here), with exports dampened by weaker activity in key trading partners and rising global trade barriers. Investment growth is expected to slow, primarily reflecting a surge in global policy uncertainty. In FY2026/27 and FY2027/28, growth is expected to recover to 6.6 percent a year, on average, partly supported by robust services activity that contributes to a pickup in exports. The forecast for FY2026/27 is slightly lower than 6.7% in the January projections, as reported by Asia Law Portal here. Fiscal consolidation is expected to continue in India over the forecast horizon, with growing tax revenues and declining current expenditures projected to contribute to a gradual decline in the public debt-to-GDP ratio. In India, growth moderated, reflecting a slowdown in investment on the demand side and a deceleration in industrial output growth on the supply side. However, growth in construction and services activity remained steady, and agricultural output recovered from earlier severe drought conditions, supported by resilient demand in rural areas. In India, the policy rate, which had remained unchanged since early 2023, was lowered in early 2025. Expansion of private sector credit by commercial banks has slowed in India, mainly reflecting the central bank’s efforts to curb risks from unsecured credit. India’s merchandise trade deficit widened in April 2025, with imports—particularly of oil—increasing faster than exports, while services trade remained in surplus.

Organisation for Economic Co-operation and Development (OECD) – The OECD recently released its OECD Economic Outlook Volume 2025 report titled ‘Tackling Uncertainty, Reviving Growth’. As per the report, In India, economic growth is projected to be 6.3% in FY2025-26 and 6.4% in FY2026-27. Private consumption will gradually strengthen, driven by rising real incomes that are helped by moderate inflation, recent tax cuts and a strengthening of the labour market. Investment will be supported by declining interest rates and substantial public capital spending, but higher US tariffs will weigh on exports. Inflation will remain contained at around 4% as economic activity grows around trend. A less benign monsoon season or higher global commodity prices could drive up food prices and inflation. Monetary conditions remain restrictive, despite policy rate cuts in February and April. Headline inflation eased to 3.2% in April 2025 and is now within the central bank’s target range of 4% ± 2%, largely due to a substantial moderation in food inflation, which accounts for nearly half of the CPI basket, and declining energy prices. Easing food prices reflect a strong autumn harvest, and government interventions, such as export restrictions. As a major oil importer, India has benefited from lower global crude oil prices in recent months, which reduced domestic fuel costs and helped contain input costs in energy-intensive sectors such as transport, manufacturing, and agriculture. While core inflation remains slightly above 4%, wage growth remains moderate. High merchandise export exposure to the United States, which is India’s largest export market, increases the vulnerability of private investment to shifts in trade policy. Tariff increases and broader trade tensions may damp investor sentiment, particularly in export-oriented sectors such as chemicals, textiles, and electronics. However, the overall GDP effects will be limited by the moderate share of exports in GDP, with merchandise exports towards the United States accounting for only 2.1% of GDP.

Fitch Ratings – Fitch Ratings a few weeks back raised India’s average annual growth potential till 2028 to 6.4 per cent, from 6.2 per cent estimated in November 2023. “The Indian economy bounced back more strongly than we expected at the time of the 2023 report, suggesting a less adverse “scarring” impact from the pandemic shock,” Fitch said while updating the five-year-ahead potential GDP projections. In its updated forecast, Fitch upped India’s average growth estimate for 2023-2028 to 6.4 per cent, from 6.2 per cent. It said Fitch Ratings has slightly lowered its medium-term potential GDP projections over the next five years for the 10 emerging market economies covered in the Global Economic Outlook (GEO).

ASEAN-India Trade in Goods Agreement – The 9th Joint Committee & related meetings for review of ASEAN-India Trade in Goods Agreement (#AITIGA) began on 17th June, 2025 in Kuala Lumpur, Malaysia with all 8 Sub-Committees meeting alongside AITIGA JC. 9th Joint Committee & related meetings for review of ASEAN-India Trade in Goods Agreement (#AITIGA) concluded on 20th June, 2025 in Kuala Lumpur, Malaysia with all 8 Sub-Committees (SCs) meeting alongside AITIGA JC. Both sides made good progress in the matter. JC urged all the SCs to devote more time and do more intensive and result oriented inter-sessional meetings.