Why India Stands Strong Amid Global Uncertainties

Amid a 500% US tariff threat looming over India, HDFC Yearbook 2026 report noted that India continues to remain one of the fastest growing major economies supported by "low external dependence and controlled twin deficits (fiscal & CA)".

These factors provide hedge against external shocks besides the policy framework, reforms, infrastructure, manufacturing push and demographic dividend supportive of the country's long-term growth, it noted.

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How Will India's Policy Shift Spur Domestic Consumption?

While stimulus measures, improved liquidity and credit uptick are expected to help stabilise growth in urban consumption, supportive government policy, low product penetration and modest inflation will aid demand growth in domestic consumption. Let's look at India;'s multi-pronged approach to bolster growth.

GST Rate Rationalisation: Two primary rates of 5% and 18%, plus 40% for sin/demerit goods. The total GST forgone stands at ₹1.8 lakh crore for the government.

Income Tax Relief In Union Budget: Reduction in slab rates and rebate up to ₹12 lakh income leads to ₹1 lakh crore of tax foregone.

Monetary Measures: The cut of 125 bps in Repo Rate took place between February 2025 and December 2025

8th Pay Commission: Pay hike likely to benefit 1.8 crore government employees and 1.3 crore pensioners. The estimated one-time pay rebasing by US$60 billion is expected by mid CY27.

State Welfare Schemes: Announcement of welfare schemes worth over ₹3 lakh crore in the last 18 months by large states including Maharashtra, Madhya Pradesh, Karnataka, Telangana, and Arunachal Pradesh among others have already taken place. 

India Inc's Capex Outlook

The corporate capital expenditure has lagged due to sluggishness in consumption, subdued exports and higher imports. While consumption should pick up, Chinese oversupply and global uncertainty remain key headwinds

On the other hand, healthy balance sheets of corporates and of lenders augurs well for capex to rise as demand visibility improves, however, geopolitical uncertainty has delayed the benefits of China+1 strategy, but cost and diversification benefits are compelling Meanwhile, support via PLI, PM MITRA, Skill India continue to aid domestic production.

Fiscal Consolidation & Delivery On Budget Targets

• Personal income tax has risen to 3.5% (FY25) of GDP from lows of 2% (FY21)
• Revenue spending has eased to 10.3% (FY25) from peak of 15.6% of GDP (FY21)
• Govt likely to achieve budget targets this year despite sluggish growth in tax collections
• Govt likely to stick to fiscal consolidation in FY27 as well, fiscal deficit target of 4.2% of GDP likely in upcoming budget (FY26BE: 4.4% of GDP)