WHAT YOU NEED TO KNOW
  • Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) has been consolidating its political position by winning most of the state assembly elections after the 2024 general election.
  • India is working toward early negotiations with the United States on signing a bilateral trade agreement, giving itself a lower tariff edge for deeper integration into global supply chains.
  • The International Monetary Fund (IMF) forecasts India’s economic growth to be the highest among emerging and advanced economies, pegged at 6.2 percent, despite a reduced projection largely based on global factors.
  • A boost in India’s domestic consumption is likely due to the central bank’s reduced interest rates and the lower income tax rates that took effect in April.
ON THE HORIZON
  • The government will direct its efforts toward further integrating India’s economy with the United States, the European Union by fast-tracking ongoing trade negotiations and by kick-starting the agreed free trade agreement with the United Kingdom. At the same time, New Delhi will accelerate its strategic approach to diversify exports beyond the United States to alternative trade blocs.
  • The focus on the India-Middle East-Europe Economic Corridor is expected to expand international shipping lanes emanating from India. Vadhavan, India’s largest deep-seat port on the west coast, is expected soon. The state-of-the-art, artificial intelligence-enabled Vizhinjam Port on southwest coast was inaugurated in May.
  • Manufacturing, emerging technologies and global capability centers are expected to be key sectors of focus as the government seeks to drive growth through private investments.
  • Deepening plurilateral engagements through the Quadrilateral Security Dialogue (QUAD) between Australia, India, Japan and the United States and the I2U2 Group, between India, Israel, the United Arab Emirates and the United States, will continue to dominate India’s nuanced multialignment strategy. At the same time, the government will maintain a hawkish stance on cross-border terrorism while taking care to avoid a regional conflict.

India Market Overview and Forecast


Political Climate
Prime Minister Modi’s BJP Consolidates Political Power After General Elections

After dominating wins across the Delhi, Maharashtra and Haryana state assembly elections, Prime Minister Modi’s BJP has bolstered its position in India’s political landscape, recovering from its reduced parliamentary seats in the general elections. The ruling BJP, while consolidating its political power, has also exposed the vulnerabilities and weak spots among the opposition parties, which increasingly appear fragmented and ineffective.

The disparate political parties, which came together as a national opposition under the Indian National Developmental Inclusive Alliance (INDIA) to fight against the BJP, will likely scatter again given diverging interests in the upcoming assembly elections across states in late 2025 and 2026. As a result, regional parties are expected to reposition themselves, and a realignment of politics appears to be underway.

The upcoming Bihar election holds national importance, particularly because Janata Dal (United) is one of the key BJP allies in the National Democratic (NDA) government at the center. Although an NDA win in Bihar will likely consolidate the BJP’s political power in the center, an opposition victory could revive the INDIA bloc.

Geopolitically, the government is expected to drive India’s fundamental shift toward opening the country’s trading system to the West. In parallel, the government will pursue its plurilateral engagement strategy with like-minded partners through the Quad and the I2U2 Group.

The ceasefire between India and Pakistan is expected to continue. However, India’s new three-point doctrine on terrorism — vowing asymmetric retaliation, rejecting nuclear blackmail and equating terror organizations with their masterminds — will mean any further terror attacks on India, such as the one on April 22 in Jammu and Kashmir, will raise the direct costs for Pakistan in the future.

Macroeconomic Climate
Economic Growth Momentum To Be Impacted Amid Global Headwinds

India’s economic landscape is expected to continue growing, albeit at a slightly slower pace than initially forecast. The IMF has revised the GDP growth forecast for the second half of the year from 6.5 percent to 6.2 percent, primarily due to tariff tensions, policy uncertainty and the complex international atmosphere. Projections for the next financial year have also been adjusted from 6.5 percent to 6.3 percent. Despite the external risks, India’s economic growth is forecast to be the highest among emerging and advanced economies, as evidenced by 7.2 percent growth in the first quarter.

The U.S. imposition of reciprocal tariffs will likely have a short-term impact on India as companies adopt a wait-and-see approach during the 90-day — and potentially beyond — temporary tariff pause. However, in the longer run, India stands to benefit compared to other Asian economies facing higher tariffs, making India an attractive destination for businesses to shift their supply chains, particularly for U.S.-bound exports.

To mitigate the tariff impact, India is diversifying its export markets by expanding westward. Negotiations with the United States have already finalized terms of reference covering 19 chapters under the proposed bilateral agreement. Additionally, talks are ongoing with the United Kingdom and the European Union to conclude trade agreements by the end of the year.

A positive impact on consumption will likely follow the lowering of tax rates, which took effect in April. The Reserve Bank of India cautiously reduced the repo rate, currently at 6 percent, for the second time in April. The cut is expected to stimulate borrowing, investment and consumption, benefiting sectors like real estate, manufacturing and consumer durables. The bank also aims to keep inflation within manageable limits, with forecasts predicting inflation to average between 4-4.5 percent.

Investment Environment
Potential Green Shoots Despite Global Uncertainty

India is navigating the tariff war while overcoming global headwinds and uncertainty by negotiating mutually beneficial trade treaties with the United States, the European Union and the United Kingdom. New Delhi is expected to offer greater market access to key allies while positioning itself as a reliable supply chain partner to attract greater investments and technology diffusion.

The possibility of an early trade deal with the United States could position India as a reliable sourcing destination for consumer goods and electronics, including smartphones and laptops. This would make Indian products more competitive, particularly in the U.S. market. Leading consumer electronics brands have plans to increase their investments to boost their manufacturing output in the country, increasingly positioning India as a hub for global smartphone production. Other companies that are currently manufacturing in China are also in talks with Indian joint venture partners to side-step higher tariffs by shifting part of their production capacity to India. These developments are expected to boost India’s exports of devices such as batteries, circuit boards and displays in the medium term and of electric vehicle components and information technology hardware in the longer run.

Government Pivots Focus From Government Spending to Private Investments

The government’s emphasis will continue to be on critical and emerging sectors such as high-value electronics, 5G technology design and development, telecommunications, clean energy and toys. The government will seek to improve the investment climate by implementing compliance-reducing ease-of-doing-business measures, including through the National Single Window System, India Industrial Land Bank, Project Monitoring Group and the liberalization of foreign direct investment policies. The focus will be on manufacturing in general through production-linked incentive schemes, with an emphasis on sectors such as toys, leather and sports goods, leveraging tailor-made policies.

The government will also pursue ways to reduce regulatory barriers to drive efficiency in the logistics sector by opening up PM Gati Shakti (PMGS) data and maps for private sector use and mapping local job opportunities to the PMGS portal. It will also seek to complete trade connectivity infrastructure, including India’s largest maritime deep-water port at Vadhavan, and develop the National Industrial Corridor Development Program with an estimated investment of $3 billon. The project spans across 10 states and six industrial corridors.

We will continue to keep you updated on developments in India as they occur. If you have any questions or comments, please contact BGA India Senior Director Vaman Desai at vdesai@bowergroupasia.com.

Best regards,

BGA India Team

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Non-Executive Chairman

Alok is one of India’s most respected foreign policy, national security and international relations experts. Based in New Delhi, he maintains unparalleled networks in India’s government and civil service, business, civil society and diplomatic circles. Working with the BGA India team, he guides the development of client strategies and directs their implementation as non-executive chairman. Alok retired from government service in 2012 as India’s ambassador to Japan, where he led the mission during the negotiation and signing of the India–Japan Comprehensive Economic Partnership Agreement. He lived in Japan through the tsunami and the Fukushima nuclear disaster. Prior to his post ... Read More