India Well Positioned Amid Tariff Shocks: Economic Survey

The Survey noted that the global economic environment has become increasingly uncertain, with trade policy now shaped more by strategic and political considerations than by multilateral rules. “Trade policy is now shaped primarily by security and political considerations rather than efficiency or multilateral rules,” it observed.

It warned that the global system has become “less coordinated, more risk-averse, and more exposed to non-linear outcomes,” reflecting the growing fragility of international economic cooperation.

Referring to recent tariff actions by the United States, the Survey recalled that the announcement of additional penal tariffs on Indian exports came as a surprise, especially when India was expected to be “one of the early winners in the new tariff regime of the United States.”

These developments led to downward revisions in global growth forecasts and heightened volatility in international markets.

However, the Survey underlined that India’s growth momentum remained intact. “Growth is good; the outlook remains favourable; inflation is contained; banks are healthy; and corporate balance sheets are strong,” it stated, adding that policy dynamism and structural reforms have helped sustain economic activity despite external pressures.

At the same time, the document highlighted a broader paradox confronting the economy. “The paradox of 2025 is that India’s strongest macroeconomic performance in decades has collided with a global system that no longer rewards macroeconomic success with currency stability, capital inflows, or strategic insulation,” it said.

The Survey pointed out that heightened global uncertainty, driven by trade conflicts, geopolitical realignments, and weakening rule-based systems, has affected capital flows and investor sentiment. Financial markets, it noted, tend to react first, with uncertainty triggering a wait-and-see approach that delays investment and raises risk premia.

According to the Survey, emerging market economies are more vulnerable to such uncertainty. While global trade growth is projected to slow sharply in 2026, “trade policy uncertainty is likely to have a more pronounced impact on the trade volumes of EMDEs than on those of advanced economies.”

For India, external risks manifest less as immediate macroeconomic stress and more as intermittent pressure on exports, capital flows, and currency stability. The rupee, the Survey observed, “does not accurately reflect India’s stellar economic fundamentals” and is “punching below its weight,” partly due to global risk aversion.

Nevertheless, the Survey noted that an undervalued currency has helped cushion the impact of higher US tariffs on Indian goods. India’s export sector has also shown adaptability, with diversification toward alternative markets helping maintain overall export growth even as shipments to the US moderated in certain sectors.

Looking ahead, the Survey cautioned that the principal risk lies not in any single external shock but in prolonged global fragmentation. “Fragility, uncertainty and episodic shocks are increasingly structural features of the system,” it said.

Despite these challenges, the Survey maintained an optimistic outlook, projecting steady growth supported by domestic demand, healthy balance sheets, and sustained reform momentum. “The outlook, therefore, is one of steady growth amid global uncertainty, requiring caution, but not pessimism,” the Survey concluded.