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Consumption as a Safety Net

India’s economy is showing signs of resilience even as U.S. tariffs loom over global trade. Analysts highlight two major factors that could help cushion the impact: stronger-than-expected economic growth and a surge in domestic consumption.

Goldman Sachs recently upgraded India’s real GDP growth forecast, citing robust consumer activity, policy support, and a stable investment environment. With private consumption accounting for nearly 60% of India’s GDP, rising demand for goods and services is expected to act as a buffer against external shocks.

The Role of Monetary Policy

Lower interest rates are another contributor to India’s domestic momentum. The Reserve Bank of India (RBI) has maintained a supportive stance, ensuring liquidity remains available. Cheaper borrowing costs mean households and businesses have more disposable income, fueling everything from housing purchases to retail spending.

If rates remain accommodative, analysts expect India’s middle-class consumers to play a central role in offsetting weaker export earnings caused by U.S. tariffs.

The Weak Rupee Challenge

While domestic demand offers some insulation, India’s weakening currency poses a significant risk. The rupee has slipped to multi-year lows against the U.S. dollar, raising concerns about imported inflation, particularly in energy and raw materials.

For exporters, a weaker rupee can improve competitiveness, but for the broader economy, higher import bills for oil and essential goods could squeeze household budgets and erode some of the benefits of stronger consumption.

Balancing Growth with External Risks

Despite these challenges, India remains one of the fastest-growing major economies in the world. Policymakers are betting that consumer-driven growth will keep momentum strong even as trade pressures intensify.

At the same time, authorities are closely monitoring the currency and external accounts to ensure that the benefits of robust domestic demand are not outweighed by rising import costs and inflationary pressures.

Outlook for 2025

India’s ability to balance strong consumption with external vulnerabilities will be a key theme in 2025. While tariffs from the U.S. pose a headwind, India’s large internal market, accommodative monetary policies, and consumer spending power give it a stronger cushion than many of its emerging market peers.

However, much depends on how policymakers manage the rupee’s decline and whether inflationary pressures remain under control. If domestic demand continues to expand at the current pace, India could weather trade turbulence and maintain its position as a global growth leader.