OECD Economic Outlook Warns of Global Fragility Despite Resilient Growth: US Tariffs may Cut India's 6.7% Growth
SDG 8: Decent Work and Economic Growth | SDG 17: Partnerships for the Goals
Ministry of Finance | Reserve Bank of India (RBI)
The OECD Economic Outlook, Volume 2025 Issue 2, emphasizes that the global economy has remained resilient due to strong AI-related investment and supportive macroeconomic policies, but it faces increasing fragilities. Global GDP growth is projected to moderate from 3.2% in 2025 to 2.9% in 2026, before picking up to 3.1% in 2027.
The outlook remains subject to substantial downside risks:
Trade Fragmentation: Further increases or swift changes in trade barriers and tariffs, particularly around critical inputs, could significantly damage supply chains and global output.
Financial Instability: High asset valuations, fueled by optimistic expectations of AI-driven corporate earnings, pose a risk of abrupt price corrections, potentially amplified by highly leveraged non-bank financial intermediaries (NBFIs).
Fiscal Vulnerabilities: Failure to tackle high and rising public debt across advanced economies could push long-term sovereign yields higher, tightening global financial conditions.
India-Specific Details and Projections
The report projects strong growth for India but identifies clear policy risks and opportunities, particularly in its macroeconomic management:
GDP Growth Projections (Fiscal Year):
FY 2025-26: 6.7%.
FY 2026-27: 6.2%.
FY 2027-28: 6.4%.
Inflation and Monetary Policy:
Headline inflation is currently low (0.3% in October 2025) and projected to gradually converge towards the central bank’s 4% target.
The RBI has reduced the policy interest rate from 6.5% to 5.5% during 2025 , with room for further cuts toward 5% if inflation remains stable and expectations remain well anchored. Declining lending rates are already supporting credit growth.
Fiscal Outlook and Policy:
The fiscal deficit is expected to decline moderately from 4.9% of GDP in FY 2024-25 to 4.5% in FY 2025-26 and remain steady thereafter.
The GST reform may reduce revenue by around 0.1% to 0.2% of GDP, but this will be offset by broader economic growth and improved tax compliance through digitalization.
The overall fiscal stance is broadly neutral, balancing support to growth while rebuilding fiscal buffers.
Major Headwind: New US tariffs (a rise of 25 percentage points) on many exports are expected to weaken India’s export growth, with the overall impact estimated to reduce GDP growth by about 0.4 percentage points in FY2025-26.
Policy Recommendations:
Harmonizing regulations across different levels of government to simplify the regulatory environment.
Sustaining strong public investment and boosting private participation through enhanced Public-Private Partnerships (PPPs) to speed up infrastructure development.
Expanding access to technical and vocational education to close skill gaps and retaining skilled workers.
Deepening trade integration by actively pursuing new bilateral trade agreements and simplifying customs procedures.
Policy Relevance
The OECD report underscores that despite robust domestic drivers and necessary monetary easing, India’s growth path is highly sensitive to rising global protectionism. The identified weaknesses—particularly persistent infrastructure bottlenecks, complex internal regulation, and the threat of tariffs on exports—reinforce the urgent need for structural reforms, including regulatory harmonization and strategic trade agreements, to mitigate external risks and secure the long-term Viksit Bharat trajectory.
Follow the full news here: OECD Economic Outlook, Volume 2025 Issue 2: Resilient Growth but with Increasing Fragilities