Navigating Global Trade Storms: How India’s Economy Stays Strong and Prices Stabilise Amidst Uncertainty
NEW DELHI (India CSR): In a world grappling with persistent trade frictions, heightened policy uncertainty, and weak consumer sentiment that continue to create headwinds for global growth, the Indian economy is currently charting a course marked by resilience and cautious optimism. For ordinary citizens, this translates into a domestic environment where key economic activities are sustaining momentum, job prospects in certain sectors are improving, and the pinch of rising prices on essential goods is notably easing. While international markets remain volatile, India’s domestic financial landscape is witnessing a turnaround, buoyed by strong fundamentals and strategic policy support. This detailed look into the state of the economy reveals the forces shaping the financial well-being of millions across the nation.
Global Economic Headwinds Persist
Globally, the economic landscape remains challenging. Persistent trade frictions, heightened policy uncertainty, and weak consumer sentiment continue to weigh on the global growth outlook. Notably, trade tensions are intensifying, particularly following significant increases in trade tariffs by the United States in early April. This policy uncertainty is weighing on global growth prospects. The IMF, in its April 2025 World Economic Outlook, revised downwards its global GDP growth forecasts for both 2025 and 2026 from its January projections, citing escalating trade tensions and policy uncertainty. There is a looming risk that a more protectionist trade environment could lead to a sharp contraction in trade volumes.
Global financial markets have remained volatile, reflecting heightened uncertainties, particularly surrounding trade policy developments. Global equity markets saw enhanced turbulence after new tariff announcements triggered broad-based sell-offs and weighed on investor sentiment. Commodity prices, influenced by significant volatility, saw declines in April driven by lower energy and base metal prices, though some saw a recovery in May as trade sentiment improved following a de-escalation in the tariff war. Headline inflation in many economies remains above target, and inflation expectations often exceed central bank targets in most advanced economies (AEs) as well as in emerging market economies (EMEs). Global manufacturing PMI contracted for the first time in four months in April 2025 due to declining new orders and worsening global trade. The global composite Purchasing Managers’ Index (PMI) growth slowed to a 17-month low in April 2025 as services sector activity decelerated sharply while manufacturing output remained sluggish. The composite PMI for new export orders contracted substantially in April 2025, with orders in both manufacturing and services moving into contractionary territory.
India’s Domestic Strength Shines Through
Despite the high trade and tariff-related uncertainty globally, the Indian economy is exhibiting resilience. Various high frequency indicators for the industrial and services sectors sustained their momentum in April. This underlying strength is also reflected in record goods and services tax (GST) collections in April, which stood at Rs 2.4 lakh crore – the highest monthly collection since GST inception in 2017 – registering a robust growth of 12.6 per cent year-on-year. This robust collection suggests resilience in economic activity as well as the government’s efforts to improve tax compliance. Collections from domestic sources and import-based sources grew by 10.7 per cent and 20.8 per cent, respectively.
Aggregate demand remained broadly resilient in April 2025. Indicators like E-way bills and toll collections showed robust double-digit growth year-on-year in April 2025. Passenger vehicle sales, an indicator of urban demand, saw a 5.5% growth in April 2025 compared to the previous year.
The manufacturing sector is also showing positive signs. India’s manufacturing PMI rose to a ten-month high of 58.2 in April 2025, primarily led by new export orders and output expansion. India continued to be an outlier among regions with robust PMI readings. The services PMI also accelerated in April, supported by a robust increase in new orders. Business expectations/future output assessments improved slightly for the manufacturing sector. Corporate sales growth remained positive for listed non-government non-financial early-reporting companies. IT companies showed further improvement in sales growth during Q4:2024-25, reaching 7.7 per cent. Non-IT services companies also saw sales growth, although it moderated slightly to 11.2 per cent during Q4:2024-25. Overall operating profit for manufacturing companies rose by 4.0 per cent during Q4:2024-25, despite rising input costs, staff costs and other expenses. Debt serviceability for manufacturing companies improved during Q4:2024-25.
Agriculture: A Pillar of Support
The agriculture sector continues to be a significant support for the Indian economy. A bumper rabi harvest and higher acreage for summer crops, coupled with favorable southwest monsoon forecasts for 2025, augur well for the sector. Mandi prices for most major food crops, except wheat, have eased and are ruling below their Minimum Support Prices (MSPs). Sowing of summer crops is nearly complete, with paddy and green gram acreage exceeding 100% of the full season normal area as of May 16, 2025. Cumulative summer acreage was 11.9 per cent higher over the corresponding week of the previous year.
Wheat procurement for the rabi marketing season (RMS) 2025-26 stood at 296.1 lakh tonnes as on May 18, 2025, which is 13.9 per cent higher than the previous year. The wheat procurement target has been revised upwards in view of higher yield in Madhya Pradesh. Rice procurement for the kharif marketing season (KMS) 2024-25 is also up by 7.1 per cent. As a result of robust procurement, the wheat and rice stocks held by the Food Corporation of India as on May 01, 2025 were significantly higher than buffer norms, reaching 4.8 times and 4.4 times the norms, respectively. The prospects of a bumper rabi harvest and the outlook of an above normal monsoon would further strengthen rural consumption and are likely to keep food inflation in check.
Inflation Eases, Bringing Relief
A key positive development is the continued moderation in inflation. Headline CPI inflation fell for the sixth consecutive month to its lowest level since July 2019, reaching 3.2 per cent in April 2025, down from 3.3 per cent in March. This easing was primarily driven by a sustained decline in food prices. Food inflation decelerated sharply to 2.1 per cent in April from 2.9 per cent in March. High frequency food price data for May (up to 19th) showed broad-based moderation in cereal and pulse prices. Vegetables and pulses subgroups continued to record deflation in April. While core CPI inflation (excluding food and fuel) edged up slightly to 4.2 per cent, the overall trend indicates reduced price pressure for consumers. Retail prices for petrol and diesel remained largely unchanged in May (up to 19th), and kerosene prices saw a substantial decline.
Financial Markets Find Footing
Domestic financial market sentiments, which had been on edge in April, witnessed a turnaround since the third week of May. Although equity markets saw heightened volatility in early April due to tariff announcements, sentiments improved later in the month and into May. Easing India-Pakistan tensions and an improvement in the global trade scenario contributed to this shift. The BSE Sensex registered gains during April-May 2025, increasing by 6 per cent to close at 82,059 on May 19. Broader market indices like the BSE Midcap and Smallcap outperformed the benchmark, gaining 8.7 per cent and 10.3 per cent respectively during April-May (up to May 19). Foreign portfolio investors (FPIs) became net buyers to the tune of Rs 36,662 crore during April-May 16, while domestic institutional investors (DIIs) played a stabilising role by capitalising on lower valuations and maintaining long-term investment.
In the fixed income segment, bond yields traded with a soft bias relative to the preceding month, influenced by factors like OMO purchases, fall in crude oil prices, and moderation in CPI inflation. The yield on the benchmark 10-year G-sec declined to 6.29 per cent on May 19, 2025, from 6.41 per cent on April 15, 2025. Corporate bond issuances surged to Rs 9.94 lakh crore during 2024-25, a rise of 16.1 per cent compared to the previous year.
Bank credit growth moderated slightly to 10.9 per cent as on May 2, 2025, while aggregate deposits with banks grew by 9.8 per cent. Banks primarily relied on deposits for funding in FY 2024-25. Scheduled commercial banks’ incremental credit-deposit ratio declined during the previous two months to 82.3 per cent as on May 2, 2025, with deposit accretion outpacing that of credit during this period.
India’s external sector remained resilient during April 2025 notwithstanding global uncertainty impacting supply chains. The Indian rupee moved within a narrow range and exhibited lower volatility compared to peer economies. India’s merchandise exports grew by 9.0 per cent year-on-year in April 2025. Services exports remained strong in March and continued to anchor India’s export performance, with total services exports reaching a record high of US$ 387.5 billion in 2024–25, a 13.6 per cent increase over the previous year. India’s foreign exchange reserves stood robustly at US$ 690.6 billion as on May 9, 2025, providing a cover for more than 11 months of goods imports and 96 per cent of external debt outstanding at end-December 2024. The share of gold (in value terms) in total foreign exchange reserves held by central banks globally, including India, has increased over the past three years. External Commercial Borrowings (ECB) recorded significantly higher net inflows of US$ 25.1 billion during 2024-25, nearly three times the level recorded a year ago. Over US$ 25.9 billion of the total ECBs raised were intended to be used for capital expenditure (capex).
Digital Transactions Continue to Boom
Payment systems data highlights increasing digital activity. Following a strong financial year-end expansion in March 2025, digital transactions continued to increase across various payment modes in April. Real Time Gross Settlement (RTGS), a key indicator of economic activity, showed robust double-digit growth (y-o-y) in volume and value in April. Retail digital payment modes like Unified Payments Interface (UPI), National Electronic Funds Transfer (NEFT), and Immediate Payment Service (IMPS) also registered growth. Total digital payments grew significantly (y-o-y) by 35.0 per cent in volume and 17.9 per cent in value in 2024-25. The central bank digital currency (e₹) is also gaining further traction, with volume more than doubling and value rising over fourfold (y-o-y) by mid-April 2025.
Outlook: Cautious Optimism
The global economic outlook remains clouded amidst shifting policy landscapes and lingering vulnerabilities. However, the outlook for India is one of cautious optimism. According to IMF projections of April 2025, India is expected to remain the fastest-growing major economy in 2025 and is likely to surpass Japan this year to become the world’s fourth largest economy. This positive outlook is supported by factors such as robust domestic consumption, increased government spending, a strong services sector, a congenial business environment, strong macroeconomic fundamentals, and a transparent policy ecosystem.
(India CSR)
