Global Political Scenario and Challenges to Indian Economy
Dr. Pradeep Chaurasiya*
Introduction:
The global economy is facing escalating geopolitical tensions, trade policy
uncertainties, and tightening financial conditions. Top economies of the world are engaged in
trade policy shifting under the new administration of United States of America. The US economy
remains resilient but imposition of tariff creates global uncertainty that could impact emerging
economy of the word including India adversely. Most affected economy due to US tariff i.e.
China is also facing deflationary pressure and weak domestic demand which could disturb global
supply chain and trade dynamics that will also indirectly impact Indian economy. The
International Monetary Fund (IMF) in his report projects global economic growth at 3.1%
annually from 2024-2029 which is 0.6% less than the average of 2000-2019 duration. As per
IMF report of April 2025 India remains fastest growing economy with growth rate of 6.4% for
FY 2025.
Global Economy overview:
The global economy is facing steady growth due to amid tension
between advanced and emerging & developing economies across the world. The global economy
is projected to grow at approximately 2.8% in 2025, a slowdown from 3.2% in 2024. This
deceleration is attributed to challenges in major economies such as the United States and China,
as well as ongoing geopolitical uncertainties. The U.S. economy is expected to grow at 1.8% in
2025, supported by strong consumer spending and robust labour markets. However, persistent
inflation and rising interest rates may pose challenges to sustained growth. The euro area is
expected to experience moderate growth of 2.1 % in 2025, supported by recovery in real
household incomes and reductions in policy interest rates. However, challenges such as weak
manufacturing and trade headwinds persist. China's growth is projected to be 4% in 2025,
influenced by fiscal support and government investments. Nevertheless, structural issues such as
a weakening property market and demographic challenges may impact long-term growth
prospects.
India continues to lead among emerging markets with a projected growth rate of 6.2% in 2025.
Factors contributing to this growth include favourable demographics, government capital
spending, and foreign investment in the manufacturing sector.
The growth projection for 2025 and 2026 remains one of the highest among major global
economies, as presented by the IMF. Despite global policy shifting and downward estimation in
growth projection of advanced economies, India emerged as leader in global economic growth.
Supported by strong fundamentals and strategic government initiatives, the country is well-
positioned to navigate the challenges ahead. With reforms in infrastructure, innovation, and
financial inclusion, India continues to enhance its role as a key driver of global economic activity.
The IMF’s projections reaffirm India’s resilience, further solidifying its importance in shaping
the global economic future.
* Assistant Professor ( Commerce ) N.M.S.N Dass PG College, Budaun.
Source: IMF,World Economic Outlook, April 2025
Indian Economic Outlook:
Growth Projections: India's GDP growth is expected to decelerate to approximately 6.2% in
FY25, down from 6.5% in FY24. Factors contributing to this slowdown include moderation
in manufacturing, sluggish private investment, and global economic uncertainties.
Monetary Policy: The Reserve Bank of India (RBI) has adopted an accommodative stance,
reducing the key repo rate to 6% in April 2025. The central bank has also infused substantial
liquidity into the banking system to support economic activity. However, caution is advised
to prevent potential inflationary pressures as the economy approaches its growth potential.
Currency Dynamics: The Indian rupee has strengthened, reaching its highest level of the
year against the U.S. dollar as on 30th April 2025 INR stands at 84.78 per US dollar, driven
by increased portfolio inflows and favourable export hedging. This appreciation is also
influenced by a weaker U.S. dollar and dovish U.S. interest rate outlooks.
Trade Relations: India is nearing a trade agreement with the United Kingdom, which is
expected to open Indian markets to British exports such as food, cars, and whisky. However,
discussions continue on issues like exemptions for Indian workers from UK national
insurance contributions and India's exclusion from the UK's carbon border tax.
Tax Relief to boost demand: Union budget 2025 declares No personal income tax payable
upto income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate
income such as capital gains) under the new regime. This limit will be Rs 12.75 lakh for
salaried tax payers, due to standard deduction of Rs 75,000. The new structure will
substantially reduce the taxes of the middle class and leave more money in their hands,
boosting household consumption, savings and investment. The new Income-Tax Bill to be
clear and direct in text so as to make it simple to understand for taxpayers and tax
administration, leading to tax certainty and reduced litigation.
In the new tax regime, the revised tax rate structure will stand as follows:
Key Challenges to Indian Economy:
The Indian economy faces several key challenges that could hinder its growth and stability
despite overall resilience:
Global Economic Uncertainty: Due to global economic uncertainty India is facing
slower export growth, volatility in capital flows, rising import cost especially in energy.
Diversifying export market and strengthen regional trade may be possible solution to
overcome from this situation. Forex reserve should be increase to avoid external shocks.
Lower Private Investment: Lower private investment and capital infusion affecting job
creation and long term economic growth of the country. Initiatives such as Streamline
regulatory clearances and land acquisition laws, Offer targeted tax incentives and stable
policy frameworks and enhance dispute resolution through fast-track commercial courts
may attract private investment.
Unemployment and underemployment: Due to the problem of job shortage youth and
women are facing significant economical and social stress. Initiative are also taken such
as Skill india 2.0 and PMKVY but these are not seems enough to overcome from
situation, to generate employment labour intensive sectors such as textiles, tourism and
food processing should be promoted.
Urban-Rural Consumption Gap: Consumption gap between urban and rural are leads
to unbalanced growth of the economy. To avoid the unbalanced growth some key
initiatives such as improvement of rural infrastructure, digital access, support MSMEs
may be implemented.
Export Competitiveness: To take competitive advantage of export, Investment in basic
export infrastructure such as port, rail and warehouse should be increase. Simplification
of export documentation and customs processes may also increase export.
Infrastructure bottlenecks: Although emphasis on ease of doing business are made but
acceleration in economy is not as expected due to poor infrastructure, delay in project
approval of gati shakti and national pipeline plans.
Conclusion: while India exhibits resilience amid global economic challenges, factors such as
global growth moderation, policy uncertainties, and domestic structural issues pose ongoing risks.
Strategic reforms and policy measures will be crucial to sustaining economic momentum. Policy
should be made in such a way, that challenges to the economy may be erase and provide a hurdle
free growth of the country.
