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

As the world prepares to welcome the new year, new uncertainties have emerged for global trade in fiscal year 2026, according to the Finance Ministry’s November Monthly Economic Review.

The report highlights challenges such as uncertain global trade growth, high equity markets and currency pressures in emerging markets.

It said, “Looking to FY26, new uncertainties have emerged. Global trade growth looks more uncertain than ever. “High stock markets continue to pose great risks”.

The report said a stronger US dollar and possible policy rate adjustments in the United States are putting pressure on emerging market currencies. This, in turn, will force monetary policy makers in these countries to reconsider their policy rate strategies.

Additionally, recent exchange rate movements have reduced the flexibility of policymakers to effectively manage their economies. Sustaining growth in this environment will require a concerted effort by all economic stakeholders.

Despite these global challenges, the report offers a cautiously optimistic outlook for India. It estimates that growth in the second half of fiscal year 2025 will be better than the first half. However, it also acknowledges that structural factors may have contributed to the slowdown seen in the first half.

“After a subdued Q2FY25, the outlook for Q3FY25 looks bright, as shown by the performance of HFIs for October and November 2024,” it said.

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

The report also said credit growth had slowed significantly in FY20, and the CRR cut would help reverse this trend.

The report emphasizes that while challenges remain, India’s economic stakeholders must remain committed to sustaining growth and effectively dealing with uncertainties.