Agencies
India, a rapidly growing economy and one of the world’s most populous countries, has long been viewed as a key player in the global economic landscape.
Its robust domestic consumption, diverse industries, and favourable demographic trends have made it one of the most attractive markets for investors worldwide.
As the world enters a period of heightened uncertainty due to a shifting geopolitical landscape, including new trade policies from the United States under President-elect Donald Trump, economists at Goldman Sachs Research have forecast that India’s economy will remain relatively insulated against global shocks over the coming year.
Although challenges such as slower government spending and credit growth are expected to temper growth in the short term, India’s long-term growth trajectory remains strong.
One of the key factors driving global uncertainty is the policy direction of the incoming administration of U.S. President-elect Donald Trump.
Trump’s campaign promises centred around imposing tariffs on imports, renegotiating trade deals, and prioritizing American industry.
These policies are expected to disrupt global trade flows, with far-reaching implications for many countries, especially those that rely heavily on exports, like China and Mexico.
The global economy is at a crossroads, with increasing protectionism, trade wars, and disruptions to global supply chains becoming significant risks.
The potential for a rise in U.S. tariffs on goods from countries like China, Mexico, and other emerging markets is a source of concern for many.
However, India’s economy, according to Goldman Sachs, is expected to remain relatively insulated from these global shocks.
India is not as heavily reliant on exports as some of its Asian counterparts, and much of its economic activity is driven by domestic demand. As a result, it is less vulnerable to disruptions in international trade.
Goldman Sachs attributes India’s ability to weather external shocks to several factors.
The first and most important factor is its large, domestic consumer base.
India’s economy is underpinned by its thriving consumer sector, with an increasing middle class and a youthful population driving demand for goods and services.
This internal demand serves as a cushion against global shocks, as it reduces the country’s dependence on foreign markets.
Additionally, India’s services sector, particularly IT and business process outsourcing, has become an increasingly important contributor to the country’s GDP.
While the global outsourcing market may be impacted by changing trade dynamics and protectionist policies, India’s services industry remains relatively competitive due to its established reputation for high-quality and cost-effective services.
Even with the potential for trade friction with the U.S. and other countries, India’s services exports are likely to continue their growth trajectory.
Another crucial element in India’s economic resilience is its large, young, and growing population.
With over 1.3 billion people, India’s demographic trends are a key driver of its long-term economic prospects.
As more people enter the workforce and rise into the middle class, domestic demand for goods and services will continue to increase.
In fact, India is expected to have the largest working-age population in the world by 2030, providing it with a significant economic advantage in the coming decades.
While India is expected to be relatively insulated from global shocks in the long term, Goldman Sachs forecasts a slight deceleration in economic growth next year.
This slowdown is attributed to two key factors: a reduction in government spending and slower credit growth.
Government spending in India has been a significant driver of economic activity, especially under the current administration.The government’s push for infrastructure development, rural employment schemes, and social welfare programs has provided a boost to economic growth.
However, as the Indian government faces mounting fiscal pressures, it is expected to slow down its spending in the short term.
This could have a dampening effect on the broader economy, particularly in sectors reliant on government contracts and investments.
In addition to government spending, the rate of credit growth in India is expected to slow.
Over the past few years, credit growth in the country has been a key driver of consumption and investment.
However, the banking sector continues to struggle with a large amount of non-performing assets (NPAs), which has made financial institutions more cautious in lending.
As credit growth slows, consumer and business spending could be impacted, resulting in a temporary slowdown in economic activity.
Despite these short-term challenges, Goldman Sachs remains optimistic about India’s long-term economic prospects.
The firm expects India’s GDP to continue growing at a strong pace over the next several years, driven by factors such as demographic trends, increasing urbanisation, and a shift toward higher value-added industries.
India’s growing middle class will continue to fuel demand for a wide range of goods and services, while the country’s infrastructure development and industrialisation efforts will support further growth.
India’s government is also expected to implement reforms that will drive growth in the long run.
The introduction of the Goods and Services Tax (GST), which aims to streamline the country’s complex tax system, is one such reform that is expected to boost economic activity in the medium to long term.
In addition, the government’s focus on improving the ease of doing business, attracting foreign direct investment (FDI), and fostering innovation will support India’s competitiveness in the global market.
The country is also likely to benefit from its increasing integration into global supply chains.
As the global economy becomes more interconnected, India’s expanding infrastructure, technological capabilities, and skilled labour force will make it an increasingly attractive destination for multinational companies looking to diversify their supply chains.
India’s role as a hub for manufacturing, technology, and services is expected to grow, positioning it as one of the most important emerging markets in the world.
As global economic conditions become more unpredictable, India stands out as one of the most resilient economies, largely insulated from the direct effects of global trade disruptions and protectionism.
While the Indian economy faces some short-term challenges, including slower government spending and credit growth, its long-term growth prospects remain strong.
A large domestic consumer base, a young and growing population, and ongoing structural reforms will help India maintain its economic momentum.
Goldman Sachs’ forecast suggests that while India’s GDP growth may slow slightly in the short term, the country’s overall economic trajectory remains on a positive path.
With its focus on domestic demand, services exports, and long-term structural reforms, India is well-positioned to continue its rise as a global economic powerhouse.