Perception of prolonged uncertainty may put a break on private capex: FinMin report
Uncertainties stemming from global developments constitute a key risk for the growth outlook for FY26.
| Photo Credit:
Manvender Vashist Lav
A Finance Ministry report on Tuesday apprehended that Trump tariffs and the resulting trade wars may push private sector to put investments on hold. Although it was optimistic about India’s overall economic outlook, the Finance Ministry’s Monthly Economic Review simultaneously noted that trade tensions combined with geopolitical risks pose a risk to inflation.
The Review said Indian economy continues to demonstrate resilience in the face of a turbulent global environment. The growth momentum is supported by easing inflationary pressure, growing consumption demand, fiscal discipline, labour market stability and a resilient financial sector, it said.
“Uncertainties stemming from global developments constitute a key risk for the growth outlook for FY26. More than trade, the perception of prolonged uncertainty may cause the private sector to put its capital formation plans on hold,” the Review said. “The private sector and policymakers must be mindful of this risk and act urgently to avoid making uncertainty feed upon itself,’ it added.
It said private capital formation holds the key to the sustainability of this favourable constellation. Public policy and regulatory measures can both facilitate and nudge the private sector to do its part. With the right strategies in place, continued domestic reforms, and a strong focus on infrastructure development and job creation, the economy can demonstrate resilient growth despite global uncertainties.
According to the Review, the domestic economy is large, and capital formation can lead to a mutually reinforcing cycle of investment-income growth-demand growth-additional capacity creation. “In contrast to normal times, action and execution have greater impacts now. It is an opportunity not to be missed,” it advised.
Post tariff action, each and every agency, including International Monetary Fund and RBI have lowered the growth forecasts for India to 20-30 basis points to 6.2 per cent to 6.5 per cent. This is within the range of 6.3 per cent to 6.8 per cent by the Economic Survey on January 31.
Inflation outlook
The review noted that the retail inflation rate declined to 3.34 per cent from 3.61 per cent in February, marking the lowest year-on-year inflation recorded in 67 months. Food inflation also witnessed a notable decline, by 106 basis points to 2.7 per cent in March from 3.7 per cent in the previous month. This is the lowest since November 2021. Although inflation in edible oils, as well as in gold and silver, remains elevated amidst international price pressures, the overall inflation outlook has improved with low core inflation and easing food prices.
Nonetheless, “ongoing global uncertainties, including trade tensions and geopolitical risks, pose upside risks to commodity prices and may put pressure on supply chains,” the review said.
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Published on April 29, 2025
