Page 17 - CII ARTHA

OCTOBER 2025

Headwinds Confidence with Caution

Even as the tailwinds provide the request fillip to growth, one The upward revision of India’s real GDP forecast to 6.8–7.0
cannot ignore the headwinds hovering over the horizon. per cent for the current fiscal reflects CII’s confidence in
Notably, while these headwinds are mainly blowing from domestic demand resilience, policy traction, and
external shores, they have cast a veil of uncertainty over the macro-financial stability.
growth outlook.
That said, continued vigilance on nominal growth trends,
While we are certain that the adverse impact of these export diversification, and fiscal consolidation will be crucial
headwinds will be negated by the domestic tailwinds, these to sustaining momentum.
need to be monitored carefully. A few such headwinds have
been enumerated below: CII will maintain ongoing oversight of high-frequency
indicators and remain attentive to developments in
growth metrics.
The Impact of US Tariffs

Export growth is expected to be a drag on GDP growth in the
coming quarters following the imposition of 50.0 per cent
tariffs on India by the US from August. Certain
labour-intensive sectors are particularly vulnerable. Textiles,
gems and jewellery and fishing are expected to be hit the
most. These sectors have a ~25.0 per cent share in the
exports to the US. The three sectors cumulatively accounted
for 12.2 per cent of merchandise exports in fiscal 2025.
Slowing global growth may put further pressure on export
performance. Moreover, the elevated uncertainty could hinder
private investments as business decisions may be delayed.

Low Nominal GDP Growth

Nominal GDP growth in the first quarter registered a modest
8.8 per cent, moderating from 10.8 per cent in the preceding
quarter. This moderation is primarily attributable to a subdued
GDP deflator of 0.9 per cent. The deflator, which is derived
from Wholesale Price Index (WPI)-based inflation posted an
anemic 0.3 per cent, largely due to sluggish price movements
in tradeables such as crude oil and metals, which dominate
the WPI basket and remained subdued during the quarter.
Given expectations of continued softness in WPI for the
remainder of the fiscal year, there exists a tangible risk of the
GDP deflator remaining low. This poses a downside risk to the
nominal GDP growth assumption of 10.1 per cent embedded
in the Union Budget, which underpins projections for tax
revenues and the fiscal deficit.

A lower nominal GDP growth number is not healthy for a
growing economy like India as it signifies a slowdown in the
combined effect of real output expansion and inflation.
Persistently low nominal growth can also constrain fiscal
revenues, affect corporate earnings, and dampen private
investment sentiment.

17