Swaminathan Aiyar, Consulting Editor, ET Now provides an in-depth analysis of India's FY25 GDP projections, investment trends, and market uncertainties. While the government forecasts GDP growth between 6.3% and 6.8%, he highlights global risks, particularly the impact of US political developments on financial markets.

Aiyar advocates for a cautious fiscal approach, warning against aggressive stimulus measures amid external volatility and private sector hesitation in capital expenditure.

The government has projected GDP growth in the range of 6.3% to 6.8%, but Aiyar points out that this wide range suggests a cautious and safe approach rather than a firm projection.

While domestic fundamentals appear stable, external factors, especially the unpredictability of Donald Trump’s policies, are casting a shadow over global markets. This uncertainty is making investors wary, and as a result, India's growth might settle at the lower end of the projected spectrum.

Despite the government's continued commitment to high capital expenditure, the private sector remains hesitant to increase investments. Aiyar explains that businesses are meeting existing demand but do not see enough growth prospects to justify aggressive expansion.

Furthermore, the export outlook remains weak, limiting opportunities for large-scale investments. Given this, private sector investment might remain subdued for the next 12 to 18 months, leading to concerns that the government may not meet its capex targets for FY25.

International instability, particularly US political developments, is playing a bigger role in shaping global financial trends than domestic policies. Aiyar warns that foreign investors are likely to pull out funds from emerging markets, including India, in favor of safer US assets.

This could lead to further weakness in the Indian rupee and pressure on the stock markets. The uncertainty surrounding Trump’s economic and trade policies means that investors are adopting a "wait and watch" approach rather than making bold market moves.

Aiyar strongly believes that the government should stick to the fiscal deficit glide path of 4.5% and resist any temptation to introduce large-scale tax cuts or stimulus measures. He argues that this is not the time to aggressively boost consumption, as global uncertainties demand a more conservative fiscal strategy.

However, he acknowledges that the budget may include some middle-class tax relief to maintain political goodwill, but it should be done cautiously to avoid jeopardizing financial stability.

6/6

Inflation appears to be under control for now, thanks to a strong harvest and stable commodity prices. However, Aiyar warns that inflation is not entirely within India's control, as global supply chain disruptions or unexpected commodity price fluctuations could quickly change the situation.

Instead of making bold projections, he suggests a pragmatic approach, where policymakers acknowledge the uncertainties ahead and avoid premature declarations of inflation stability.