These are tough times. Controllable factors are increasingly shrinking, and the uncontrollable ones are expanding at a rapid pace. Too many uncertainties are being added to a nation’s economic growth functions. How to navigate to safety? How to keep moving for ward?
As countries work overtime to navigate ex treme volatility around the world, the World Bank has cut growth forecasts for 70 per cent of the economies across regions and income groups. In its latest report on Global Economic Prospects, the World Bank has projected the growth to slow to 2.3 per cent in 2025, nearly half a percentage point lower than the rate that had been expected at the start of the year. If forecasts for the next two years materialise, av erage global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s. “Outside of Asia, the developing world is becoming a development-free zone,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice-President for De velopment Economics. “Downside risks to the outlook predominate, including an escalation of trade barriers, persistent policy uncertainty, rising geopolitical tensions and an increased incidence of extreme climate events,” the report said. Indeed, the risks for the global economy appear to have reached alarming levels.
OVERWHELMING WAR SITUATIONS
On one hand, there is a full-blown trade war which has triggered uncertainties of unanticipated proportions. On the other hand, geo political tensions are escalating by the day. The wars between Russia – Ukraine, Israel and Iran are taking serious turns and any escalation in the conflicts will have serious repercussions across the globe and impact huge ly oil-consuming countries such as India. In fact, oil pric es have already started moving north.
Amidst all this, at the moment, India, per haps, is in a sweet spot if crucial indicators are to go by. The GDP is projected to grow by 6.5 per cent in FY25, according to the National Statis tical Office (NSO) second advance estimates. Quarter 3 GDP growth was 6.2 per cent, re bounding from 5.6 per cent in Q2 due to higher private consumption and government spend ing. Several major organisations, such as the World Bank, the International Monetary Fund, Asian Development Bank, have projected the GDP growth to be between 6.2 per cent and 6.7 per cent.
INDIA MOVES STRATEGICALLY
The consumer price inflation has eased to 2.82 per cent in May 2025, down from 3.16 per cent in April and below market expectations of 3 per cent. This marked the lowest reading since February 2019, bringing inflation close to the Reserve Bank of India’s lower tolerance thresh old of 2 per cent under its inflation-targeting framework. Food inflation, which accounts for nearly half of the CPI basket, fell sharply to 0.99 per cent, the lowest level since October 2021. Fuel and light inflation also moderated (2.78 per cent vs 2.92 per cent in April). Both the fiscal and monetary authorities are working in tandem to accelerate growth.
RBI surprised everyone with a generous 50 basis points cut in the repo rate. It did not stop with it and went on to announce a 100 basis points reduction in the cash reserve ratio (CRR). Clearly, the RBI chose to travel an aggressive path. It has sent out an unambiguous message in the form of policy certainty in an extremely uncertain and volatile global situation. The objective is straightfor ward and intended to boost consumption and accelerate growth. The indicators on the monsoon front are fair ly positive. Fiscal bosses have already slashed personal income tax to put more money into the pockets of people. These coordinated and concerted actions on the part of the fiscal and monetary authorities ostensibly are intended to boost consumption, improve capacity use and step up private investment. If the trade war has larger implications for exports, the geopolitical tensions have the cost-push potential. The fiscal and monetary mandarins have their job cut out.