At an estimated 7.4 per cent, India’s growth in 2025 is an outlier to a global economy buffeted by trade tensions and fiscal strains. But it foreshadows a period of moderation, with growth dropping to 6.6 per cent next year, according to the United Nations.
Risks for the region remain tilted to the downside, with the UN’s periodic ‘World Economic Situation and Prospects’ report released on Thursday night particularly highlighting trade policy uncertainty and high public debt.
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Despite this, the UN’s forecast for India and South Asia remains in the realm of ‘solid growth prospects’, which is more than can be said for the rest of the world — globally, economic prospects remain subdued amid elevated macroeconomic uncertainty and structural challenges, with overall growth projected to drop slightly from 2.8 per cent last year to 2.7 per cent this year. While it is expected to go up to 2.9 the year after, it is still lower than the average 3.2 per cent growth seen the world had seen before Covid.
The reasons remain shifting trade policies, geopolitical tensions, and fiscal pressures. Modest investment and growth in manufacturing and production means medium-term prospects remain dull. And the advent of AI does promise a boost, but the UN report warns that its benefits are likely to be uneven and lead to even more inequality across and within countries.
“A combination of economic, geopolitical and technological tensions is reshaping the global landscape, generating new economic uncertainty and social vulnerabilities,” said UN Secretary-General António Guterres, adding, “Many developing economies continue to struggle and, as a result, progress towards the sustainable development goals remains distant for much of the world.”
The bright spot
Interestingly, for its bleak estimates, the UN’s report gets steadily brighter as it moves from an overall global assumption to the Asian region, and then to South Asia, and then to India. The percentage arc of growth, from just 2.6 per cent for the whole world in 2025, improves to to 4.9 per cent for East Asia, then 5.9 per cent for South Asia, then dramatically jumping up to 7.4 per cent for India (For China, it is 4.9 per cent).
About India, the UN report says: Resilient household spending, strong public investment, and lower interest rates are expected to underpin economic activity. While higher United States tariffs may weigh on select product categories, key export segments are likely to remain largely unaffected. Moreover, strong demand from other major markets is expected to partially offset the impact.
The report says the fears of the impact of the hike in tariffs by the US were overrated. “Although recent US tariff increases on Asian economies were smaller than initially anticipated and some trade agreements have been reached, trade policy uncertainty is a near-term risk, the report warned, hinting at how a major Asian economy like India is yet to reach a deal on the tariff front.
The report warns that the fallout of tariffs apart, a slowdown in major economies like China, European Union and the United States could further weigh on regional merchandise trade, investment flows, and tourism activity.
High government debt
UN also warns countries, especially those in South Asia like India, about the dangers of high government debt. Post-Covid this has been a sensitive matter, as many financial ceilings were swept aside considering the extraordinary situation. This fragile fiscal position means these governments will not be able to quickly respond, at least not effectively enough, when it comes to sudden external shocks, say a war or a trade imbroglio. And there is enough and more evidence that these are situations that may increasingly be visible across nations and economies in the days to come.
In fact, the biggest folly, if you read the report between the lines, is for nations not to get carried away by the surprisingly robust figures (in most cases) of many economies in the year just gone by, despite the fear that the tariff trauma and the upending of the global post-cold war model of cooperation would have been more devastating.
“The expansion (in trade) was driven by the front-loading of shipments early in the year and robust growth in services trade,” the UN report pointed out. “However, momentum is expected to ease, with trade growth projected to slow to 2.2 per cent in 2026.”
Making this situation worse would be the fact that globally, investment growth has remained subdued in most regions.
The report strains in its exhortation to the world to go back to a ‘pre-Trump’ era, even if it doesn’t mention the American leader by name. Navigating an era of trade realignments, persistent price pressures, and climate-related shocks will demand deeper global coordination and decisive collective action at a time when geopolitical tensions are rising, policies are becoming more inward-looking, and impetus towards multilateral solutions is weakening, a statement issued by the international body said, offering its suggested antidote to the woes of the world: ‘Sustained progress will depend on rebuilding trust, strengthening predictability, and renewing the commitment to an open, rules-based multilateral trading system.’
