Trade tensions or slowing demand—what’s India’s bigger challenge?

In this episode of State of the Economy with Shishir Sinha, economist Debopam Chaudhuri joins Shishir Sinha to unpack the contrasting signals coming from India’s economy. While headline indicators such as GST collections and manufacturing PMI suggest solid momentum, deeper layers of the data tell a more complex story.  “There is a lot of conflicting information that is coming out from the high-frequency data set. So, on one hand, we see GST numbers holding up, the PMI at a 16-month high… But on the other hand, we are seeing inflation being slightly elevated, the fiscal deficit slightly widening... So, it is typical of an economy which is yet to come out of the woods,” said Debopam Chaudhuri, Chief Economist, Piramal Group.  He explained that while India's economy is not in crisis, the post-pandemic recovery remains incomplete. Real, sustained growth over the long term is essential—not just one-off quarterly highs.  “In order to completely come out of it, we need to ensure a growth rate of at least 7.5 to 8% real growth rate on a sustained basis for at least 8 to 10 years,” he said, underlining the scale of the challenge  The discussion shifts to global trade tensions, particularly the upcoming US tariff regime expected from August. While acknowledging short-term risks for Indian exporters, Chaudhuri remains optimistic, citing India’s growing self-reliance and active trade negotiations with the UK, EU, and Japan.  But a bigger concern lies closer to home—urban consumption. While rural demand remains relatively stable, consumption in cities has softened due to inflation, higher borrowing costs, and job market uncertainty.  Chaudhuri anticipates two more interest rate cuts in FY26, most likely in October and February, rather than August, as the RBI waits to assess the impact of earlier rate reductions. Softer rates, paired with easing food inflation, could support discretionary spending during the festive season.  Finally, he reflects on inflation dynamics. While headline CPI may tick up slightly due to seasonal food prices, core inflation remains under control—suggesting underlying stability. The sharp fall in rural inflation does not necessarily indicate distress for farmers, he said, since price corrections have largely occurred in seasonal and volatile commodities.  (Host: Shishir Sinha, Producers: Rowan Philip Barnett; Siddharth Mathew Cherian)