India in safe harbour but underlying risks mounting: Crisil chief economist

India has weathered an increasingly uncertain global environment with notable resilience, but underlying risks remain elevated, said Crisil Chief Economist Dharmakirti Joshi.

Delivering the inaugural address at the 16th Annual Finance Conference at the Great Lakes Institute of Management in Chennai on Thursday (February 26), he spoke on the theme “Safe Harbours and Windy Waters: India’s growth story amid global uncertainty”.

'Best and worst of times'

To describe the current global moment as both reassuring and precarious, he borrowed from Charles Dickens to say it is “the best of times and the worst of times”. Global growth has held up despite the pandemic shock and a reversal in the USA’s trade policy under President Donald Trump, he said.

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Forecasts for world growth have broadly remained intact, Joshi noted, even after tariff announcements unsettled markets.

According to him, the actual macroeconomic hit from tariffs has been smaller than headline rates suggest. Citing data from the Federal Reserve Bank of New York, Joshi explained that effective tariff collections have been lower than published rates because of exemptions and product-level adjustments.

“What impacts the economy is the effective rate, not the announced rate,” he said, adding that uncertainty remains high and could have lagged effects.

Structural changes in global trade

The Crisil chief economist also pointed to structural shifts in global trade. China’s exports to the Global South have surged even as shipments to the US and Europe have flattened. Unlike earlier Asian economies that moved up the value chain and ceded labour-intensive manufacturing, China continues to dominate both advanced sectors, such as electric vehicles and solar panels and mass manufacturing, such as textiles, Joshi said.

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In the US, growth is increasingly concentrated in artificial intelligence (AI)-related investments, including computing equipment and electricity generation, he said. Outside these segments, industrial output has been largely flat. Whether AI-led investment translates into broad-based productivity gains remains an open question, Joshi cautioned.

Against this backdrop, India has emerged as an outlier. Joshi said the country is expected to grow 7.4 per cent in FY26 before moderating to 6.7 per cent next year.

Despite facing steep headline tariffs, the economy has benefited from a surge in smartphone exports, which are largely exempt from duties, and resilient services exports that account for nearly half of total shipments. Exporters also front-loaded consignments ahead of tariff hikes, he added.

Strong domestic support

Domestic factors have added support. Normal monsoons, relatively soft crude prices, strong foreign exchange reserves covering about 11 months of imports, healthier corporate and bank balance sheets, continued public capital expenditure, and direct benefit transfers have bolstered demand and stability, Joshi said.

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However, he flagged a disconnect in financial markets. Capital inflows have softened, and the rupee has faced pressure despite robust macro fundamentals. Bond yields have remained elevated even after policy rate cuts, as higher state government borrowing has offset fiscal consolidation by the Centre, he said.

“The headline numbers look calm,” Joshi said. “But beneath the surface, risks are still building,” he cautioned.