RBI’s Economic Outlook: India’s Growth Momentum and Global Impact

India’s Economic Performance in a Global Context

1. Fastest-Growing Major Economy: India is expected to grow at around 7.2% in FY 2024–25, outperforming China, the US, and the Eurozone.
2. Global Slowdown Contrast: While advanced economies face stagnation, India remains a resilient and growing force in the global economy.
3. Rising Share in Global GDP: India is now the 5th largest economy and contributes over 7% of global GDP (PPP terms).
4. Boost to Global Demand: A rising middle class and consumption-led growth make India a major contributor to global demand.
5. Services Trade Powerhouse: India is a leading exporter of IT and digital services, aiding global tech-driven growth.
6. FDI Magnet: Stable policies and strong fundamentals attract record FDI inflows, supporting global investor confidence.
7. Role in Global Supply Chains: Through PLI, FTAs, and Make in India, India is becoming a reliable link in global manufacturing chains.

Drivers of Domestic Growth

1. Strong Capital Expenditure Push: The government’s rising capex, especially in roads, railways, and logistics, is crowding in private investment and boosting employment.
2. Infrastructure Expansion: Flagship initiatives like PM Gati Shakti and the National Infrastructure Pipeline (NIP) are enhancing connectivity, logistics efficiency, and ease of doing business.
3. Private Sector Revival: Corporate deleveraging, PLI incentives, and improved business confidence are leading to a renewed cycle of private investment across sectors.
4. Booming Digital Economy: Rapid adoption of UPI, Digital Public Infrastructure (DPI), and fintech innovation is transforming service delivery and expanding the formal economy.
5. Expanding Middle Class: Rising incomes and urbanisation are fuelling domestic consumption, especially in housing, education, health, and retail.
6. Financial Inclusion & Credit Growth: JAM trinity, DBT, and Jan Dhan accounts have deepened financial access, while retail credit and MSME lending are growing steadily.
7. Rural Development Focus: Schemes like PM Awas Yojana, PMGSY, and MNREGA are improving rural infrastructure, demand, and livelihoods.
8. Demographic Dividend & Skill Focus: India’s young population and initiatives like Skill India are enhancing productivity and workforce participation.

India’s Role in the Global Supply Chain

1. China+1 Strategy: Global manufacturers are diversifying from China due to geopolitical and supply disruptions. India is emerging as a preferred destination under the China+1 strategy due to its stable policies and young workforce.
2. Make in India Initiative: The Make in India mission is promoting domestic production in electronics, defence, automotive, and textiles by easing norms, boosting infrastructure, and incentivising local value addition.
3. Atmanirbhar Bharat Push: India aims to reduce dependency on imports in critical sectors like defence, semiconductors, and renewables through domestic capacity building and strategic policy support.
4. PLI Schemes for Manufacturing: The Production Linked Incentive (PLI) schemes across 14 sectors like electronics, solar PV, pharma, and green hydrogen are designed to attract investment and boost exports.
5. Improving Logistics and Infrastructure: Projects under PM Gati Shakti and the National Logistics Policy are reducing turnaround times and enhancing last-mile connectivity for industry.
6. Export-Oriented Growth: India is positioning itself as a key exporter of mobile phones, generic drugs, and precision engineering goods through policy and global tie-ups.
7. Integration of Services in GVCs: India’s IT, design, R&D, and BPM services are becoming integral to global value chains, adding high-value, skill-based inputs to global production.
8. MSME Participation in Supply Chains: Government schemes are enabling MSMEs to access finance, digitise operations, and become suppliers to global OEMs.

External Sector Resilience

1. Strong Export Performance: India’s exports of goods (like engineering, textiles, pharma) and services (IT, consulting) have remained robust despite global trade headwinds.
2. Stable Current Account Management: The current account deficit remains manageable due to services trade surplus and strong inward remittances from the Indian diaspora.
3. High Forex Reserves: India maintains over $600 billion in forex reserves, which strengthens macroeconomic stability and buffers against currency volatility.
4. Sustained FDI Inflows: Despite global uncertainty, India attracts significant FDI in sectors like digital tech, renewable energy, and manufacturing due to investor confidence and reforms.
5. Diversified Trade Partners: India’s exports are well-distributed across major economies like the US, EU, UAE, and ASEAN, reducing dependency on any one region.
6. Strategic Trade Agreements: CEPA with the UAE and negotiations with the UK, EU, and Australia aim to lower trade barriers and enhance market access for Indian products.
7. Promotion of INR Trade: India is pushing for internationalisation of the rupee by allowing trade settlements in INR with countries like Russia, UAE, and Sri Lanka.
8. Supportive External Sector Policies: Export promotion schemes like RoDTEP, SEZ reforms, and logistics support strengthen India’s external sector competitiveness.

Structural and Policy Reforms

1. GST for Indirect Tax Reform: The Goods and Services Tax (GST) has simplified the tax regime, improved compliance, and created a unified national market.
2. IBC and Financial Discipline: The Insolvency and Bankruptcy Code (IBC) has improved debt resolution and reduced NPAs, strengthening banking sector health.
3. DBT and JAM Trinity: Direct Benefit Transfers through Jan Dhan, Aadhaar, and Mobile ensure targeted delivery of subsidies, reducing leakages and corruption.
4. Labour Reforms for Flexibility: The four labour codes aim to balance worker protection with business flexibility, improving ease of hiring and formalisation.
5. Financial Inclusion Boost: Over 50 crore Jan Dhan accounts, digital banking expansion, and micro-finance outreach have improved access to credit and savings.
6. Formalisation of the Economy: UPI, e-Shram, GSTINs, and digital payments have expanded the formal economy and improved tax revenues.
7. Ease of Doing Business Reforms: India has cut red tape through single-window clearances, online portals, and simplified compliance, attracting foreign and domestic investment.
8. Green Transition Policies: India is pushing for a cleaner economy with support for solar power, green hydrogen, EVs, and carbon markets under the net-zero 2070 roadmap.

India’s Leadership in Multilateral Platforms

1. G20 Presidency Contributions: India used its G20 Presidency to highlight digital public infrastructure, climate finance, and Global South concerns, resulting in key consensus outcomes.
2. Advocacy for the Global South: India is voicing the needs of developing nations in forums like BRICS, G20, and the UN, seeking fairer global rules and resource sharing.
3. Leadership in Digital Governance: India advocates for ethical AI, open-source digital public goods, and data sovereignty as a model for inclusive tech regulation.
4. Participation in Quad, IPEF: India is a key member in Indo-Pacific platforms shaping economic security, supply chain resilience, and regional cooperation.
5. Climate Diplomacy Leadership: Initiatives like ISA, Coalition for Disaster Resilient Infrastructure, and LiFE are shaping global climate resilience narratives.
6. Health and Vaccine Diplomacy: Through Vaccine Maitri, India supplied COVID-19 vaccines to over 90 countries, strengthening soft power and humanitarian leadership.
7. BRICS and SCO Cooperation: India promotes multipolarity and South-South cooperation through active roles in BRICS, SCO, and NAM.
8. UN Peacekeeping and Aid: India remains among the top contributors to UN peacekeeping forces and provides disaster relief aid across Asia and Africa.

Challenges and Risks

1. Global Geopolitical Uncertainty: Conflicts like Russia-Ukraine and tensions in West Asia disrupt trade, supply chains, and oil prices—posing external shocks to India.
2. Oil and Energy Dependence: Over 85% of India’s crude oil is imported, making the economy vulnerable to price spikes and currency pressure.
3. Climate Change Vulnerability: India is highly exposed to heatwaves, floods, and erratic monsoons, which affect agriculture, water security, and health.
4. Employment Generation Gaps: Job creation, especially in manufacturing and rural sectors, remains a key concern despite high GDP growth.
5. Skilling and Education Gaps: A large section of youth lacks industry-relevant skills, highlighting the need to bridge education-employment mismatches.
6. Urban Infrastructure Deficit: Rapid urbanisation is stressing housing, water, waste management, and transport systems in major cities.
7. Regional and Social Inequality: Economic and human development disparities between regions and communities require targeted interventions.
8. Fiscal Pressures and Debt: High public debt and subsidy burdens limit the government’s fiscal space for capital and social spending.

Way Forward

1. Invest in Human Capital: Strengthening school education, higher education, public health, and nutrition is essential for long-term growth and inclusion.
2. Promote Innovation and R&D: Increase public and private R&D spending, support deep-tech startups, and build linkages between academia and industry.
3. Deepen Financial Markets: Broaden access to corporate bonds, insurance, and long-term capital for infrastructure and startups.
4. Accelerate Green Growth: Scale up renewables, promote green hydrogen, and support climate-resilient agriculture and infrastructure.
5. Urban Reforms and Smart Cities: Enhance urban governance, affordable housing, metro networks, and sustainable urban mobility.
6. Agricultural Transformation: Improve productivity, promote crop diversification, food processing, and link farmers to e-markets.
7. Strengthen Federalism: Empower states with fiscal resources, policy flexibility, and performance-based incentives to drive competitive growth.
8. Ensure Policy Continuity and Governance: Maintain policy stability, improve judicial efficiency, reduce delays in project clearances, and build institutional capacity.

Conclusion

India’s emergence as a key engine of global growth reflects a combination of strong domestic fundamentals, targeted policy reforms, and strategic global engagement. Amid global headwinds, India’s resilience—driven by robust investment, expanding digital infrastructure, and a rising middle class—positions it as a beacon of stability and opportunity. The RBI’s recognition underscores India’s growing role in shaping global supply chains, fostering inclusive innovation, and championing the interests of the Global South.