India’s growth outlook positive despite new uncertainties for global trade in FY26: Finance Ministry

As the world prepares to welcome a new year, fresh uncertainties have surfaced for global trade in the financial year 2026, according to the November monthly economic review by the Finance Ministry.

The report highlighted challenges such as uncertain global trade growth, elevated stock markets, and currency pressures in emerging markets.

It said, “Looking into FY26, newer uncertainties have emerged. Global trade growth is looking more uncertain than before. Elevated stock markets continue to pose a big risk”.

The report stated that the strong US dollar and potential policy rate adjustments in the United States are pressuring emerging market currencies. This, in turn, will compel monetary policymakers in these countries to reconsider their policy rate strategies.

Additionally, recent exchange rate movements have reduced policymakers’ flexibility in managing their economies effectively. Sustaining growth in this environment will require a concerted effort from all economic stakeholders.

Despite these global challenges, the report provides a cautiously optimistic outlook for India. It predicts that growth in the second half of FY25 will be better than the first half. However, it also acknowledges that structural factors may have contributed to the slowdown observed in the first half.

It said, “After a moderation in Q2 of FY25, the outlook for Q3 appears bright, as reflected in the performance of HFIs for October and November 2024.”

The report pointed to the Reserve Bank of India’s (RBI) combination of monetary policy and macro-prudential measures as contributing factors to the demand slowdown. It welcomed the RBI’s decision to reduce the cash reserve ratio (CRR) from 4.5 to 4 per cent in December 2024, stating that this move is expected to boost credit growth.

The report also noted that credit growth had slowed significantly in FY25, and the CRR cut should help reverse this trend.

The report emphasized that while challenges persist, India’s economic stakeholders must remain committed to sustaining growth and navigating uncertainties effectively.