The finance ministry on Tuesday said global uncertainties pose a key risk to the country's FY26 growth outlook.
More than trade, the "perception of prolonged uncertainty may cause the private sector to put its capital formation plans on hold", the ministry said in its monthly economic report for March.
"The private sector and policymakers must be mindful of this risk and act urgently to avoid making uncertainty feed upon itself," it cautioned.
The domestic economy is large and capital formation can lead to a "mutually reinforcing cycle of investment-income growth-demand growth-additional capacity creation", the ministry said, calling on policymakers and the private sector not to miss the opportunity.
Action and execution have greater impact now than in normal times, it stressed.
The latest Economic Survey has projected growth to remain in the 6.3-6.8% range this fiscal, compared with an estimated 6.5% in FY25.
The International Monetary Fund last week trimmed its India growth forecast to 6.2% for FY26 from 6.5% announced in January, citing heightened global trade tension and uncertainties. The country will still remain the world's fastest-growing major economy.
'Positive' outlook
The ministry asserted that the domestic economy continues to demonstrate resilience in the face of a turbulent global environment, and that the outlook remains "positive".
Investments, the ministry said, have gained traction and are expected to strengthen further on the back of sustained capacity utilisation, the government's continued emphasis on infrastructure development, healthy balance sheets of banks and companies, and easing financial cond ..
While global uncertainties may pressure merchandise exports, services exports will likely maintain their resilience.
"Nonetheless, risks from ongoing global trade disruptions warrant close monitoring and diversification into various hitherto unexplored markets," it said.
This is the time for the private sector to invest in product differentiation and quality "as easy pickings recede into history", it said.
The removal of compliance, inspection and logistics hurdles has assumed far greater urgency than before, it added.
The report said farm sector prospects remain bright in FY26, backed by healthy reservoir levels and robust crop output. It augurs well for rural consumption, which remains robust, while urban demand is showing steady improvement, thanks to rising discretionary spending.
"Manufacturing activity is showing signs of revival with robust business expectations. Services sector activity continues to be resilient," it said. Labour market conditions remain stable.
The planned reduction in the public debt-to-GDP ratio will create additional domestic resources for private investment, especially as states also work to decrease their debt burdens.
"As a result, fiscal discipline is expected to enhance the momentum of economic growth," the ministry said in the report.
Long-term growth
The report highlighted that India's long-term growth is driven by macroeconomic stability, a resilient external sector, moderating fiscal deficit, easing inflation, improving employment prospects, and high consumption expenditure.
"Private capital formation holds the key to the sustainability of this favourable constellation. Public policy and regulatory measures can both facilitate and nudge the private sector to do its part," it said.
Source Name : Economic Times