India’s gross domestic product is expected to grow 6.7% in the fiscal year ending March 2027, unchanged from the March forecast in a Reuters poll conducted between April 20 and April 27 among 54 economists. That would mark a slight slowdown from the 7.0% growth estimated for the year ended March 31, 2026.

Forecasts for fiscal 2026-27 ranged from 5.9% to 7.5%, while growth was projected to edge up to 6.8% in 2027-28.Economists said the headline outlook masks deeper strain in the informal economy, where businesses and workers are more vulnerable to higher fuel costs, supply disruptions and weaker demand.

India’s shadow economy has previously accounted for nearly half of official GDP readings, although real-time data on its performance remains limited.In urban areas, which generate roughly 60% of India’s GDP, restaurants and hotels have reportedly shortened operating hours, reduced menus or shifted to alternative fuels such as firewood as conflict-related disruptions in the Middle East affect liquefied petroleum gas supplies.

“The informal segment is the worst hit and its ability to absorb shocks is very low. So we will see a ripple effect on jobs and demand,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. “All of that is going to play out if this problem persists beyond the near term.”India revised its GDP data methodology in recent years to improve the capture of informal sector activity, but economists said gaps remain substantial.

Yes Bank Chief Economist Indranil Pan said the disruption to the informal sector would not be reflected significantly in headline GDP figures.“That’s also the reason why we have not really changed our GDP much at this point in time,” he said.Inflation is expected to average 4.5% this fiscal year, according to the poll, remaining within the Reserve Bank of India’s 2% to 6% target range but more than double last year’s pace.

Despite higher price pressures, economists expect the RBI to keep interest rates unchanged through the end of 2027, reflecting concerns over balancing inflation control with growth stability.

Analysts said the government has attempted to cushion the impact of higher energy prices by cutting fuel duties, but a prolonged Middle East conflict could strain public finances and force a reallocation of spending away from infrastructure investment toward subsidies.

Capital expenditure has been a key growth driver in recent years amid weak private-sector investment, and any shift away from it could weigh on medium-term expansion.Aditya Vyas, chief economist at STCI Primary Dealer Ltd, said uncertainty linked to external shocks made a strong recovery in private investment unlikely in the near term.

“If push comes to shove, there could be a situation where a material diversion of funds from capex to subsidies happens,” Vyas said. “Price pressures are imminent and will in the medium term affect the fiscal front.”

India’s rapid expansion of digital payment infrastructure is transforming the country’s informal economy, reshaping how small businesses operate and how individuals access financial services.

Driven by government-backed platforms and widespread smartphone adoption, the shift toward cashless transactions is accelerating financial inclusion while also introducing new regulatory and operational challenges.

At the center of this transformation is the National Payments Corporation of India, which operates the Unified Payments Interface (UPI), a real-time payment system that has seen exponential growth in recent years. UPI allows users to transfer money instantly between bank accounts using mobile applications, eliminating the need for traditional banking intermediaries.

According to official data released by NPCI, monthly UPI transactions have surged into billions, reflecting widespread adoption across urban and rural areas. Small vendors, street hawkers, and local service providers traditionally reliant on cash are increasingly accepting digital payments through QR codes and mobile apps.

The shift has been particularly significant in the informal sector, which accounts for a substantial portion of India’s workforce. Digital payments are enabling businesses to maintain transaction records, access credit, and integrate into formal financial systems.

This transition is seen by policymakers as a step toward improving tax compliance and economic transparency.The Reserve Bank of India has played a key role in regulating and promoting digital payment systems.

Through policy measures aimed at enhancing security and interoperability, the central bank has sought to build trust among users while encouraging innovation within the fintech sector.Private technology companies have also been instrumental in driving adoption.

Platforms such as PhonePe and Google Pay have expanded their user base by offering simplified interfaces and incentives for digital transactions. These applications have effectively bridged the gap between banking infrastructure and everyday users.Despite the progress, challenges remain.

Cybersecurity concerns are growing as transaction volumes increase, with reports of fraud and data breaches highlighting vulnerabilities within the system. Regulators have responded by introducing stricter authentication protocols and awareness campaigns to educate users about safe practices.

Another concern is digital literacy. While smartphone penetration has increased significantly, a segment of the population remains unfamiliar with digital financial tools. This gap is particularly evident among older populations and in regions with limited internet connectivity.

Addressing this issue is critical to ensuring that the benefits of digital payments are distributed evenly.The expansion of digital payments is also influencing consumer behavior. With instant payment capabilities, spending patterns are becoming more fluid, and businesses are adapting by offering digital-only discounts and services.

Analysts note that this shift is contributing to the growth of e-commerce and online service platforms.From a macroeconomic perspective, the move toward digital transactions is expected to enhance efficiency and reduce the costs associated with cash handling.

It also provides policymakers with better data for economic analysis, enabling more informed decision-making.However, the transition raises questions about data privacy and market concentration.

As large technology firms play an increasingly central role in financial transactions, concerns have emerged regarding data ownership and competitive practices. Regulators are closely monitoring these developments to ensure a balanced ecosystem.

The government has continued to promote digital payments through initiatives aligned with its broader digital economy strategy. These efforts include expanding internet infrastructure, incentivizing adoption, and integrating digital systems into public services.

Experts caution that while digital payments offer clear advantages, they should complement rather than entirely replace cash systems, particularly in regions where infrastructure remains uneven. A hybrid approach is seen as more practical in the near term.

India’s experience is being closely observed by other developing economies seeking to replicate its model of rapid digital financial inclusion. The combination of government support, private sector innovation, and user adoption has created a framework that could inform similar initiatives globally.

As digital payments become embedded in everyday life, their impact on the informal economy, financial systems, and regulatory landscape is expected to deepen.

The challenge for policymakers will be to sustain growth while addressing emerging risks and ensuring that the transition remains inclusive.

Aiyar cautioned that the simultaneous downturn in the world’s two largest economies would inevitably exert a strong downward pull on the entire global economy.

While the recent trade tensions between the United States and India have garnered significant attention, economists warn that a potential slowdown in the world’s two largest economies, the US and China, poses a far greater threat to India’s economic stability. Swaminathan Aiyar, a prominent economist and consulting editor at ET Now, emphasized that the ripple effects of a major recession in these global powerhouses would significantly outweigh the impact of any bilateral tariff disputes.   

Aiyar’s concerns arise amidst escalating uncertainty in the global economy, largely fueled by President Donald Trump’s aggressive trade policies. Despite a temporary 90-day pause on planned tariffs against several nations, including India, following a sharp decline in US stock markets, the underlying tensions remain. Moreover, China’s retaliatory measures, including increased tariffs on US goods, further exacerbate the situation.   

The economist had previously criticized Trump’s tariff announcements, labeling them a potential “Recession Day” rather than a “Liberation Day,” as the president had claimed. He argued that these policies would disrupt global supply chains, impede economic growth, and plunge the world economy into turmoil. Aiyar dismissed Trump’s assertion that tariffs would revitalize American manufacturing, predicting instead economic disruption.   

The erratic nature of Trump’s trade policies, with frequent changes occurring within hours, has created a climate of uncertainty for economists and investors. Goldman Sachs, while revising its recession forecast, still anticipates a significant US economic slowdown. Conversely, JPMorgan Chase maintains a more cautious outlook, assessing the probability of a US recession as still higher than not. This divergence in expert opinion underscores the precarious state of the global economic landscape, even after the temporary tariff reprieve.   

India’s central bank, the Reserve Bank of India (RBI), has already responded to these growing global uncertainties by reducing its economic growth forecast for the current financial year. The RBI also lowered the repo rate, citing concerns about weakening demand, tighter liquidity, and emerging global risks stemming from the escalating trade tensions.   

Moody’s Analytics has echoed these concerns, trimming its growth outlook for India in 2025, attributing the downward revision to the potential fallout from the US tariff measures. Despite the temporary freeze on some tariffs, Moody’s analysts highlighted that their current forecast reflects the potential economic damage should these tariffs be fully implemented in the future.   

Earlier warnings from leading global banks, including Morgan Stanley and Nomura, had already identified India, along with Thailand, as among the economies most vulnerable to the impact of reciprocal tariffs imposed by the US on key trading partners.   

According to Aiyar, a full-scale financial meltdown may have been averted, primarily due to pressure from the bond market rather than diplomatic efforts. However, he remains convinced that a US recession is highly probable. Furthermore, he anticipates a significant economic slowdown in China, even if the country avoids negative GDP growth, effectively mirroring the impact of a recession.   

Aiyar cautioned that the simultaneous downturn in the world’s two largest economies would inevitably exert a strong downward pull on the entire global economy. The unpredictability of President Trump’s future trade actions has become an embedded factor in the global economic equation, influencing investor behavior and fostering a climate of risk aversion.   

The prevailing uncertainty surrounding US trade policy is prompting investors to prioritize safety, further dampening economic activity. As Aiyar aptly stated, the constant ambiguity of Trump’s next move is “getting baked into everything else,” leading to a cautious approach across global markets.   

In conclusion, while the bilateral trade discussions between the US and India are important, the potential for a significant economic slowdown in the United States and China presents a far more substantial risk to India’s economic prospects. The interconnected nature of the global economy dictates that a downturn in these major engines of growth would have widespread and severe consequences, dwarfing the impact of any specific tariff disputes. The prevailing uncertainty and the potential for a synchronized slowdown necessitate a cautious and adaptive approach to economic policy in India.

Deepshikha Singh is an analytical content writer who enjoys turning complex information into compelling stories. Her passion lies in uncovering insights and sharing them in a way that’s both informative and engaging.

The monetary policy committee (MPC), which has three members from the central bank and three external members, kept the repo rate (INREPO=ECI) unchanged at 6.50% in an unanimous decision. It was the third consecutive time that the committee decided to maintain rates.

India has raised rates by 250 basis points (bps) since May 2022 in a bid to cool surging prices.

The central bank, however, temporarily raised the cash buffer that banks are required to hold, which is expected to push up short-term rates in the market.

“Liquidity plays a major role with regards to inflation – both in pushing up inflation and controlling inflation,” RBI Governor Shaktikanta Das said, explaining the decision.

“While inflation has moderated, the job is still not done,” he said.

The central bank raised its inflation forecast for the current financial year to 5.4% from 5.1% earlier, citing pressures from food prices. In the July-September quarter, it now sees inflation at 6.2%, significantly higher than the 5.2% earlier forecast.

The benchmark 7.26% 2033 bond yield was trading at 7.166% as of 1:00 p.m. IST, down marginally, while the rupee was flat at 82.81 against the dollar.

The BSE Sensex (.BSESN) was down 0.26%, while the broader NSE stock index (.NSEI) was down 0.23% for the day.Reuters Graphics

The RBI maintained its policy stance of “withdrawal of accommodation” to ensure inflation progressively aligns with the committee’s target while remaining supportive of economic growth, Das said. Five of six committee members voted in favour of the stance.

Monetary policy can look through food price shocks for some time, Das said.

“We do look through idiosyncratic shocks but if it shows signs of persistence, we have to act.”

Food price spikes in India, typical at the onset of the monsoon, drove up headline inflation in June, snapping a four-month downward trend. Analysts expect inflation to have reached 6.4% in July, moving out of the RBI’s 2%-6% comfort band.Reuters Graphics

The central bank took comfort in the fact that core inflation, which excludes volatile food and energy prices, has softened.

“We believe the seasonal uptick along with erratic weather conditions will continue to keep the hawkish bias of the MPC intact in the upcoming meetings as well,” said Upasana Bhardwaj, chief economist at Kotak Mahindra Bank. “However, we expect rates to remain unchanged through the rest of the year.”

Growth in the Indian economy is seen at 6.5%, unchanged from the RBI’s previous forecast.

“Demand in the economy remains bouyant,” said Das.

The expected rise in inflation and steady growth had prompted swap markets to price in the probability of one more rate hike from the central bank.

“We doubt that further hikes will materialise,” said Capital Economics.

“But with the El Nino threat lurking … there is a growing risk that the RBI delays the (policy) loosening that we currently expect to begin in early 2024 even as other major emerging economies kick off their easing cycles,” Shilan Shah, deputy chief emerging markets economist at the research house, said in the note

The RBI has devised the e-rupee as a digital alternative to physical cash – using blockchain distributed-ledger technology.

There are 1.3 million customers and 0.3 million merchants, who are using CBDC as of June 2023, RBI Deputy Governor T Rabi Sankar said in a speech.

The central bank wants to introduce CBDC not just as a payment instrument, but as digital money and there has to be a separate strategy to get customers to use CBDC, Sankar added.

“We will have to ensure how anonymity of transactions under CBDC is maintained,” he said, adding that the CBDC’s biggest advantage will come from cross-border transactions.

The RBI had last year begun experiments on both the wholesale and retail versions of e-rupee using the blockchain distributed-ledger technology, as an alternative to cash.

Bankers had raised concerns about the project saying that in its current form, they did not see any benefits of CBDCs which was similar to internet-based banking transactions and saw Unified Payments Interface (UPI) as a tough competitor for the retail use of e-rupee.

UPI lets users transfer money between banks without disclosing account details.

However, Sankar said the central bank was not thinking of incentivising CBDC, adding that the digital currency was not competing with UPI.

Mumbai (Reuters) – A multi-pronged approach woven into a comprehensive policy intervention is needed to reignite and sustain productivity growth at emerging and developing economies (EMDEs), a deputy governor at the Reserve Bank of India (RBI) said.

Michael Patra, in a speech delivered at the Sixth Asia KLEMS Conference on Sunday, said it is widely believed that structural slowdown has been spreading across the global economy after growth peaked in 2010.

While about half of this slowdown can be attributed to demographic factors, the growth rates of investment and total factor productivity are also declining, he said.

“What is worrisome is that for EMDEs, all the drivers of growth – factor re-allocations, human capital formation, the share of working age population, and investment growth – are losing strength at the same time,” Patra said.

It is believed that east and south Asia will become the world’s centre of gravity and capital accumulation will continue to contribute more than half of GDP growth, while the rest will have to come from productivity, he added.

“The policy response has to be powered by technological capital deepening, accompanied by long-term investment in research and development to nurture a competitive innovation ecosystem,” Patra said.

“EMDEs need to leverage the potential of the services sector to drive productivity growth.”

Investing in information technology infrastructure, securing a reduction in trade costs like those associated with shipping, logistics and regulation and supportive business-enabling reforms could help to engage the private sector in partnering in this endeavour, Patra said.

Raising labour participation rates, especially among women and older workers, could also boost productivity, but this will require investments in workability, retraining and acquisition of new skills in line with changing technology.

“Central banks are stakeholders in this effort in view of their mandates of macroeconomic and financial stability,” Patra said.

“A deeper understanding of productivity trends is needed by them in order to judge the position of the economy on the business cycle so as to fashion appropriate policy responses that ensure sustained non-inflationary economic growth.”

“Effective risk management, governance, and compliance practices are essential in safeguarding the bank’s reputation, financial stability, and long-term viability,” MK Jain said in a speech at the conference of directors of state-run and private banks on May 22 and May 29, respectively.

The speech was uploaded to the central bank’s website on Wednesday.

The RBI has been urging banks to adopt effective risk management practices and strengthen their governance standards to avoid financial instability.

Earlier this week, RBI Governor Shaktikanta Das, had flagged that it was a matter of concern that the central bank has come across gaps in governance at certain banks, which could lead to some volatility in the sector.

Effective governance requires a competent and independent board that oversees the management by asking pertinent questions and formulating appropriate strategies while keeping in mind the risk appetite, Jain said.

The deputy governor also sought banks to ensure that their actions comply with the intended purpose and principles of regulation and not just stick to the literal or technical interpretation.

Lenders should also take a long-term view of their business and consider the impact of decisions on their financial health, reputation, and broader societal and environmental factors, the deputy governor said.

Boards must remain vigilant, adaptive, and continuously assess the bank’s performance, risks, and opportunities, and take timely and informed decisions, he added.