Navigating global turmoil: Can India stay the course on policy and growth?

Despite geopolitical risks and inflation worries, experts say resilient growth, likely US rate cuts, and stable Indian fundamentals will shape markets in the year ahead

As global markets grapple with persistent geopolitical uncertainties, inflationary pressures, and monetary policy shifts, experts at the Business Standard BFSI Insight Summit 2025 agreed that despite the turbulence, both global and Indian economies continue to demonstrate remarkable resilience. In the discussion, moderated by Subrata Panda, Aditya Bagree, managing director (MD) and head - markets, India & South Asia at Citi; Shailendra Jhingan, head – treasury & economic research at ICICI Bank; and Arup Rakshit, group head – treasury at HDFC Bank — speak about how fund managers, policymakers, and investors are balancing liquidity, growth, and financial risk amid an evolving macroeconomic landscape. Edited excerpts:

 

Where do you see US interest rates heading, and how will this play out in the Indian market? 

Aditya Bagree: Over the past three to four years, there have been multiple events that could have caused global turmoil, yet the global economy and markets have been surprisingly resilient. Focusing on the US specifically, I see three broad themes. First, labour market slowdown. There is now formal recognition of slowing momentum in the US labour market, particularly among young graduates aged 22-26, where unemployment has remained elevated. Second, tariffs and inflation. There was concern that US President Donald Trump-era tariffs would trigger a spike in inflation. So far, much of the tariff burden has been absorbed by intermediaries and producers rather than being passed on to consumers. 

Third, growth concentration. While the US market has seen growth, it has been concentrated in sectors related to artificial intelligence (AI) and supporting infrastructure such as data centres and power. Growth has not been as broad-based as expected. Combined with the impact of the recent US government shutdown on gross domestic product (GDP), we expect potentially four to five cuts over the next year. Markets are already pricing this in. 

Shailendra Jhingan: I broadly agree with what Aditya said. In the first half of the year, US GDP growth was around 1.5 per cent, with nearly two-thirds driven by AI-related investment. AI is not just about chips, it involves significant investment in power infrastructure, cooling plants, data centres, and more. Outside of these investments, overall growth remains weak. 

On inflation pass-through, I differ slightly from Aditya. While US corporates have absorbed the costs of higher tariffs so far, eventually this burden will reach consumers. Cheaper inventories, imported before the tariffs were imposed, have delayed this pass-through, but over time consumers will pay more. The Fed is in a difficult position: unemployment is weakening, yet inflation remains an ongoing concern. In the near term, rate cuts are likely, but inflation could reassert itself later. After the new Fed chair takes over in May, we may see one more cut, but terminal rates are unlikely to be dramatically lower — perhaps three cuts from here. 

Arup Rakshit: There is broad agreement on two points: the US labour market is weakening, and AI investment has been the primary growth driver. However, this concentrated growth is also leading to job loss, especially in tech, which is beginning to have an impact. That reinforces the case for rate cuts. Whether there are five or three cuts, I agree with Shailendra that after two or three, there will likely be a pause to monitor inflation. Regarding tariffs, US corporates have absorbed much of the cost because supply chains cannot adjust quickly. Indian exporters have absorbed relatively little, as the burden has largely been borne by intermediaries in the US. 

How does this outlook affect capital flows into emerging markets (EMs), especially India? 

Rakshit: Capital inflows may not be driven by interest rate movements alone. Over the past couple of years, India has been perceived as an overvalued market, which led to outflows. In recent months, capital has begun moving back into China. India’s capital flows into public markets will depend more on corporate performance and results, rather than just interest rate differentials. Strategic flows, such as those into the banking sector, may continue, but broader capital flows will hinge more on earnings outcomes than on rates alone.

 

How many cuts do you foresee from the Reserve Bank of India (RBI), and where do you see rates headed? 

Jhingan: I don’t see a strong need for further cuts. I am reasonably bullish on India’s growth prospects. We have already had 100 bps of rate cuts (as of October 2025) and an infusion of around ₹7.4 trillion in liquidity. Some of that liquidity is being withdrawn due to RBI’s foreign exchange intervention, but overall conditions remain stable. Fiscal stimulus measures totalling ₹3.5 trillion, including both direct and indirect tax cuts, have also been significant. Recent RBI measures on deregulation, external commercial borrowing (ECB) flows, and access to acquisition financing will start showing results. Capex intentions in some sectors are picking up. That said, headline GDP numbers can mask underlying weakness. Nominal GDP growth, a better indicator, has been slowing. The actions taken so far should help arrest the slowdown. 

Bagree: The debate within RBI’s Monetary Policy Committee (MPC) will centre on “space for cuts” versus “need for cuts”. With inflation well under control and expected to fall further, there is space for cuts. The question is whether they are necessary right now. 

Rural demand has remained resilient and, after goods and services tax (GST) rate cuts, urban consumption has also improved. Between fiscal and monetary stimulus, much has already been delivered this year, and some of it is still filtering through the system. Two more CRR (cash reserve ratio) cuts are expected, which would add further liquidity.

 

In the last four months, foreign investment in Indian bonds has picked up again. With anticipated US rate cuts, where do you see this trend going? 

Jhingan: A lot depends on India’s fundamentals. Passive flows came with inclusion in the JP Morgan index, but even today, foreign holdings of Indian government bonds are about 3.2 per cent, which is not very high. If inclusion in another index, such as Bloomberg’s, happens, we could see additional passive flows.

 

Bagree: On fixed income, expected passive flows from EM bond index inclusion — around $24-25 billion — have largely materialised. Active flows are more volatile and sensitive to expectations of rate cuts and yield movements. Foreign participation in Indian bonds remains modest, even after accounting for SDLs (state development loans) and corporate bonds. On the equity side, global flows have also chased AI-related themes in markets like Taiwan, Korea, and China. If tariff issues ease, growth returns, and valuations correct, foreign investors may come back.

 

Where do you see the rupee heading, and how do you view the RBI’s strategy? 

Bagree: The rupee’s underperformance in recent months stems partly from seasonal factors. July to September typically sees elevated outflows for imports, dividends, defence payments, and education expenses. In addition, portfolio inflows into India have been weak for several reasons. In the near term, we are cautiously constructive on the rupee. If some global uncertainties, including tariffs, are resolved, portfolio flows could return.