2025 promises to be an eventful year for the global economy as can already be seen from the volatility in the markets, changing power dynamics and historic policy decisions. In this backdrop, the Chief Economists Outlook, published by World Economic Forum offers some great insights on the emerging contours of the current economic environment and priorities for the policy-makers. Being at a critical junction of economic turnover, India needs to remain vigilant and proactively adapt to these shifts to maintain robust growth.
1. India Will Be A Key Player in South Asia Growth Story
61% of chief economists expect strong or very strong growth in 2025 for South Asia. This regional performance will be largely due to robust growth in India, one of the fastest growing major economies. ASEAN (Association of Southeast Asian Nations) will also see strong growth with GDP expected to expand by 4.7% in 2025 according to the International Monetary Fund (IMF).
2. US Ties Will Play A Major Role For The World
61% economists believe that developments in the US will alter the trajectory of the global economy in the long-term rather than a short term disruption. This inflection point will make the relations with the US more critical in areas of trade, migration, fiscal policy, industrial policy and foreign policy. According to World Bank data, the United States of America is India’s top market with trade value reaching US$ 80,230 millions. With 68% economists expecting significant changes in trade policy, India will have to proactively work with the US to strengthen its economic ties.
3. Fragmentation of Goods and Labour
94% of the chief economists surveyed expect further fragmentation of goods trade over the next three years. Significant majorities also expect increased barriers to labour mobility and transfers of technology and data. Labour mobility is the area where fragmentation is most likely, with more than three-quarters of chief economists expecting higher or much higher levels of fragmentation.
As multinational companies will have to adapt by restructuring their change supply chains, India has a unique opportunity to position itself as a key manufacturing and exports hub.
4. Drivers of Changing Trade Patterns
Protectionism is identified in the survey as the factor most likely to drive lasting changes to global trade patterns. Additionally, other features including supply chain restructuring (93% of respondents), conflict and sanctions (83%) and national security concerns (77%) will also change trade patterns. Only a minority of respondents expect either climate change (36%) or regulatory divergence (44%) to alter trade patterns significantly. Despite the global headwind, global competition and rising protectionism, India’ saw its exports grow by 6% and its share in global service exports doubled from 1.9% in 2005 to 4.3% in 2023. This has been possible due to India’s liberal fiscal and trade policy that do not promote protectionism, making India an attractive destination for investments and ready to adapt to the changing trade patterns.
The chief economists also expect growing regionalization of trade, as well as a continuation of a gradual shift in the composition of trade from goods to services India is well placed to leverage this transition as it is one of the leading exports hub for software services and its domestic IT service market is expected to grow by 3-5% in FY25 and reach US$ 1 trillion by 2030. With policies like Action Plan for Champion Sectors in Service and Service Exports from India Scheme (SEIS)
the service sector in India should be ready for the global demand, ensuring competitiveness in the long run.
Way Forward
While India is well placed to deal with the changing patterns in the economies, it must adopt a strategic and forward-looking approach. Schemes such as Production Linked Incentives (PLI), Make in India, Remission of Duties and Taxes on Exported Products (RoDTEP) and Export Promotion Capital Goods (EPCG) must be implemented properly to help India become a global manufacturing hub. Growth of employment, infrastructure and enhanced labour capacities will also help in better labour mobility and supply chain efficiency. To reach it’s US$ 5 trillion economy target and achieve long-term success, India’s policy framework must focus on building resilience and competitiveness while answering to the evolving global economic and political landscape.