Global Uncertainty May Risk India's Growth in FY26, Stall Private Sector Capital Formation

The Finance Ministry warned that even if the outlook Indian economy appears positive, uncertainties stemming from global developments constitute a key risk for the growth outlook for FY26. In its latest monthly economic review, the ministry also flagged that it could delay the private sector's capital formation plans.

"The economy continues to demonstrate resilience in the face of a turbulent global environment, with the growth momentum supported by easing inflationary pressure, growing consumption demand, fiscal discipline, labour market stability and a resilient financial sector," the ministry said.

"Uncertainties stemming from global developments constitute a key risk for the growth outlook for FY26. More than trade, the perception of prolonged uncertainty may cause the private sector to put its capital formation plans on hold," the report added further.

It further highlighted that with India’s domestic market offering ample scope for expansion, timely investments could spark a positive cycle of job creation, income growth, and rising demand. The ministry urged both industry and policymakers to act decisively, noting that in uncertain times, the impact of swift action is even greater. The current moment, they said, is a critical window of opportunity that must not be lost.

Fiscal Consolidation

The report further highlighted the government's continued commitment to fiscal consolidation, continuously declined since the COVID-19 peak of 2020-21, has enabled higher availability of domestic savings to finance private sector investment. "As general government debt ratios decline, public sector borrowing costs will decline, resulting in overall economy-wide lower cost of capital," it added.

Private Consumption

The Finance Ministry said Private consumption is gaining strength, with rural demand emerging as a key driver. As per Neilsen IQ, during Q3 of FY25, fast-moving consumer goods posted volume growth of 9.9% in rural India as compared to 5.7% in Q2 of FY25. It said that urban consumption also picked up pace, with volume growth rising to 5% in Q3 FY25. The uptick in consumption is also reflected in vehicle sales, which saw a notable rise across all vehicle categories in March 2025 compared to February 2025.