Industry Odisha Bureau, Oct 16: The IMF has endorsed India’s economic resilience, with growth seen above 7%. Yet inflation, oil prices, US tariffs, AI and climate risks test the outlook. Budget 2027–28 must tackle them.
India’s economy is projected to grow above 7% this year and next. That outlook comes despite wars, an oil shock and US tariff action. Yet four challenges could test that momentum ahead of the next Union Budget.
The International Monetary Fund has endorsed India’s economic resilience. A Hindustan Times editorial said the IMF’s assessment should surprise no one. It credited India’s fiscal management since the Covid-19 pandemic. India avoided the large cash handouts adopted by many western countries then.
Domestic demand has kept the growth engine running. Heavy public spending on infrastructure has added further support. Still, these growth figures remain forecasts, not realised outcomes.
The finance minister must now prepare the Union Budget for 2027–28. It is usually presented on 1 February and takes effect from 1 April. The editorial identifies four areas that will shape her task. These are inflation and oil, trade disruption, AI and the climate crisis.
Inflation is the most immediate concern. Both retail and wholesale inflation have risen substantially, the editorial noted. They could rise further once higher oil prices reach domestic fuel prices. India’s crude import basket has averaged about $100 a barrel since 1 April.
That figure matters for budget planning. An oil price assumption of $100 would change the budget’s maths significantly. Higher fuel costs also feed into transport and manufacturing expenses. That can squeeze household spending and corporate margins.
Inflation does carry one fiscal side effect. It lifts nominal growth and can shore up tax revenues. However, higher nominal growth does not mean stronger real growth.
Trade presents a second set of risks. India’s free trade agreements should deliver gains, with some starting by next year. But the US remains a key concern. India runs a trade surplus with the US, a large trading partner. Further US tariff action could hurt exporters. Non-tariff measures could also hit India’s services exports.
Those services, especially IT, face a third challenge from artificial intelligence. The AI boom could unsettle the sector’s traditional business model. Foreign investors have already moved money to markets with stronger AI exposure, the editorial said. AI could also lift productivity, provided firms and workers adapt.
Climate change forms the fourth challenge. The recent tragedy in Nepal highlighted the human cost of extreme weather. India’s own poor monsoon has underlined the economic toll. Weak rains can hurt farm output, rural incomes and food prices.
Despite these pressures, India is expected to outperform most economies. The Prime Minister said on Monday that India offers reliability and stability amid uncertainty.
India’s economic resilience rests on domestic demand, public investment and fiscal management. The coming budget must protect those strengths while managing costlier energy. Trade diplomacy, technology adaptation and climate preparedness will also matter. Policymakers would welcome a calmer global environment, the editorial concluded.
