External vulnerabilities from trade barriers, especially tariffs from the US, remain but a successful trade deal with the US could mitigate these risks and boost exports even as private investment remains cautious in the face of global uncertainty, the Ministry of Finance said in its monthly economic review for April on Tuesday. India has the potential to remain one of the most promising destinations for investment, amid global uncertainty, the Ministry said, adding that India continues to be the fastest-growing major economy despite a revision of growth rates amid rising global uncertainties and trade tensions.
“As of April 2025, India remains the fastest-growing major economy despite a revision of growth rates amid rising global uncertainties and trade tensions. Multiple agencies project India’s growth to be a range of 6.3-6.7 per cent in FY26, supported by robust domestic fundamentals, stable macroeconomic management, and growing government capital expenditure, while declining inflation strengthens this outlook. However, external risks persist, notably from a 26 per cent US tariff on Indian imports, though a temporary suspension is in place as bilateral negotiations continue”
“…the risk of renewed trade barriers remains a key external vulnerability. Private sector capital expenditure could lag behind, with firms adopting a more cautious stance amid global uncertainty and tighter financial conditions. A successful US-India trade agreement could flip current headwinds into tailwinds, opening up new market access and energising exports,” the Ministry said.
Tariff impositions by the US on all countries in April were followed by retaliatory escalations by China and the EU. These country-specific tariffs were eventually suspended at least until July 9, pending further negotiations, and as of now, a flat 10 per cent tariff applies to imports from all countries, effective April 10.
The Ministry noted that the outcome of a pause in the US-China reciprocal tariffs will be important. Further, the passage of the US Budget Bill for the next financial year and the reaction in the US bond market, in light of the recent downgrade of the US sovereign credit rating by Moody’s, will also set the tone for financial markets globally in the final months of 2025.
Listing out India’s advantages in the form of macroeconomic stability, fiscal policy focused on quality of expenditure and prudence, a benign inflation and monetary policy backdrop and financial and corporate sectors with strong balance sheets, the Ministry said this may not be the moment for self-congratulation but, equally, it is a moment to remember one’s strengths and leverage them to make oneself not just attractive but also indispensable to investors.
“Foreign direct investors are likely to respond positively to policies that strengthen the country’s medium-term growth prospects. In particular, policies that enhance the skills and productivity of the country’s young workforce can significantly strengthen the virtuous cycle of investment and growth,” it said.
Story continues below this ad
An above-normal and spatially well-distributed monsoon will keep the food inflation outlook benign, the Ministry said. “Going forward, inflationary pressures stemming from food items are expected to remain low on account of a good rabi harvest, an increase in the area sown under summer crops, and healthy buffer stocks of foodgrains,” it said.
Retail inflation rate had declined to 3.16 per cent in April from 3.34 per cent in March, marking the lowest annual inflation rate since July 2019. The India Meteorological Department (IMD) in its forecast on Tuesday said that the seasonal rainfall across the country is likely to be 106 per cent of the long-period average, with a model error of ±4 per cent, indicating a high probability of above-normal rainfall during the monsoon season.
The Finance Ministry also pointed out that curbing states’ debt would not only enhance their debt sustainability but also help reduce overall government debt, supporting improved fiscal health and greater macroeconomic stability. It said an analysis of state finances shows that with a constant level of committed expenditure, states are facing less of a budget constraint to undertake discretionary revenue expenditure. “While many states running revenue surpluses could undertake more capex, states with revenue deficits may rein them in, while retaining capex spend,” it said.
