UPSC CURRENT AFFAIRS – 22nd March 2025

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India’s Economic and Trade Outlook Amid Global Uncertainties

Why in news?

As highlighted in the RBI’s March 2025 Bulletin, India’s economy continues to show robust fundamentals with GDP growth pegged at 6.5% for FY 2024–25, despite an increasingly volatile global backdrop. This remarkable performance is powered by strong domestic demand, public investment, and prudent monetary policy, even as the external sector remains under pressure.

Economic Growth Anchored in Domestic Strength

In a world marred by supply chain disruptions, rising geopolitical tensions, and the resurgence of protectionism, few emerging economies have demonstrated the kind of resilience that India has shown.

India’s projected GDP growth of 6.5% for FY 2024–25 signals steady momentum in a global economy expected to slow to 3.1% (OECD forecast). The Q3 growth rebound to 6.2%, up from 5.6% in Q2, is largely driven by private consumption and infrastructure spending, particularly in sectors such as construction, financial services, and trade.

In the midst of foreign portfolio outflows and a weakening rupee, domestic investors have stepped up, stabilizing equity markets and reinforcing the economy’s internal strength.

Inflation: Under Control, But Core Concerns Remain

Headline CPI inflation fell to 3.6% in February 2025, a seven-month low, mainly due to falling vegetable prices. However, core inflation rose to 4.1%, suggesting persistent demand-side pressures and sticky service prices.

This dual trend highlights the complexity of managing inflation in a fast-growing economy—where food prices are stabilizing, but service-sector demand is adding to underlying inflationary trends.

Employment and Sectoral Recovery

India’s manufacturing employment grew at the second-fastest pace since the PMI survey began, and the services sector is also witnessing rising job creation. Urban unemployment stands at a historic low of 6.4%, a reflection of strong formal sector recovery.

The agriculture sector, too, remains buoyant, with foodgrain production estimated at 330.9 million tonnes, a 4.8% year-on-year increase, primarily due to strong Kharif (+6.8%) and Rabi (+2.8%) outputs.

Trade & External Sector: Marginal Gains Amid Global Weakness

Export Trends:

From April 2024 to Feb 2025, exports grew marginally by 0.1% to $395.6 billion, though merchandise exports fell by 10.9% in February due to weak global demand and base effects.
Electronics, rice, and ores showed resilience, while sectors like petroleum, engineering goods, chemicals, and gems & jewellery declined.

Import Trends:

Imports rose 5.7% to $656.7 billion, led by gold, electronics, and petroleum.
However, February saw a 16.3% drop, narrowing the trade deficit.
Strong imports of machinery and electronics signal rising investment-driven demand within India.

Despite a large trade deficit, falling oil and gold prices and moderated imports indicate improving external stability.

RBI’s Policy & Liquidity Management

Amid capital outflows, the RBI has deftly used Open Market Operations (OMOs), repo auctions, and dollar/rupee swaps to maintain liquidity. These measures have stabilized domestic credit markets, curbed speculative volatility, and preserved inflation expectations.

Such proactive monetary tools are critical, especially when external risks such as US-China tariff tensions, fluctuating bond yields in Europe, and rising commodity market uncertainty persist.

Sectoral Dynamics: Mixed Signals Across Key Industries

Automobiles: Car and two-wheeler sales declined, reflecting urban demand softening, but tractor sales surged, indicating strong rural economic activity.
Infrastructure: Growth in toll collections and E-way bills suggest a healthy pace of infrastructure expansion and logistics activity.
Gold & Oil: Gold prices touched $3,000 per ounce, driven by global uncertainty, while oil prices fell by 15% due to low global demand.

Global Headwinds: Impact on India’s Trade and Growth

US-China trade tensions could reduce US GDP growth by 0.6 percentage points in 2025, affecting India’s export outlook.
Protectionism and tariff wars are creating friction in global supply chains, pressuring India’s merchandise exports.
Currency volatility and portfolio investment risks will continue to challenge external stability.

Conclusion

India’s economy stands at a unique juncture—resilient domestically but vulnerable externally. While strong consumption, public investment, and robust agriculture provide a firm foundation, trade volatility, FPI outflows, and geopolitical tensions remain critical risks.

Moving forward, India must:

Enhance export diversification beyond traditional sectors.
Continue supply-side reforms to improve manufacturing competitiveness.
Deepen capital market reforms to attract long-term investments.
Sustain monetary prudence while encouraging productive credit.

The story of India’s trade and economic outlook is not just one of numbers—it is a testament to the resilience of institutions, depth of domestic markets, and the confidence of its people. With strategic policy interventions and structural reform momentum, India can not only withstand global headwinds but emerge stronger in the evolving world order.