Indian Economy Shows Resilience Amid Global Challenges: NCAER Report

Despite facing global economic headwinds, the Indian economy demonstrated signs of resilience in January, according to the National Council of Applied Economic Research (NCAER). The think tank's February economic review highlighted a turnaround in key indicators, including the manufacturing Purchasing Managers’ Index (PMI), goods and services tax (GST) collections, and automobile sales.

GST collections surged by 12.3 percent year-on-year in January, reaching a nine-month high of Rs 1.96 lakh crore. Meanwhile, the manufacturing PMI climbed to 57.7, marking a six-month high and rebounding from a 12-month low of 56.4 in December 2024.

NCAER Director General Poonam Gupta pointed to a moderation in inflation, with headline inflation easing to 4.3 percent, creating greater policy flexibility. “The agricultural sector is also exhibiting much-needed resilience, which bodes well for both inflation control and a rural economic boost,” she noted.

In February, the Reserve Bank of India (RBI) implemented its first rate cut in five years, lowering the policy rate from 6.5 percent to 6.25 percent. A recent Moneycontrol poll of 18 economists projected further rate reductions, with a majority expecting the policy rate to reach 5.75 percent by the end of the upcoming fiscal year. The RBI forecasts inflation to average 4 percent by the second quarter of FY26, indicating continued price stability.

However, Gupta cautioned that subdued growth could impact the economy’s overall prospects. Addressing concerns over foreign institutional investor (FII) outflows, she noted that such fluctuations are largely driven by external factors rather than domestic conditions. “Empirical studies show that FII flows are highly volatile and influenced by global trends. The current phase of FII reversals from India is part of a broader pattern affecting multiple emerging markets,” she explained, emphasizing the need for prioritizing foreign direct investment (FDI) to ensure sustained economic growth.