Geopolitical conflicts’ spillover on India could cause negative wealth effects, Eco Survey says

India’s economic outlook remains optimistic for the fiscal year, with projected growth rates between 6.5 per cent and 7.0 per cent, according to recent Economic Survey by the Ministry of Finance.

However, global geopolitical tensions, particularly escalating conflicts and growing geo-economic fragmentation, could pose significant risks to this outlook, the FinMin said on Monday. The potential for disruptions in global trade and finance stemming from unpredictable trade policies of major economies may affect India’s external sector, despite its current stability.

“Risks stem from global factors such as geopolitical conflicts, rising geo-economic fragmentation, uncertainties about the trade policies of major economies and consequent financial market reactions,” said the report, adding, “Their spillover effects on India could cause negative wealth effects, impacting household sentiments and altering spending intentions on durable goods.”

Meanwhile, the government noted Domestic factors offer strong support, with an expected positive agricultural output, festive demand spikes, and projected increases in government spending that are anticipated to spur investment activity.

The ministry said that stable demand conditions are crucial but warrant monitoring, particularly as high food prices have recently led to localized inflation pressures. “However, at the margin, demand conditions in the economy bear watching. Given the overall subdued inflation, barring a few food items, the real price of money may have gone up.”