As a recent Bank of Baroda analysis noted, India’s manufacturing is likely to register a substantially lower (real) growth rate in the current year. (AP photo)Official economic data on India’s Q1 growth (April, May and June) will be released at the end of August. However, given the severe economic turbulence brought on by the US and Israel’s war against Iran, there is growing concern about whether India will be able to retain its growth momentum.To be sure, according to the latest official data series released by the Ministry of Statistics and Programme Implementation, India’s economy grew at over 7% in each of the past three years — 2022-23, 2023-24 and 2024-25. This figure is crucial because it is the bare minimum that India needs to achieve its long-term goal of becoming a developed country by 2047.Will India be able to maintain this rate of growth? And what will happen to other key macroeconomic indicators, such as the rupee’s exchange rate, India’s foreign exchange reserves, domestic prices, and corporate investments in the economy?Factors at playEven at the best of times, macroeconomic performance depends on several factors, but over the past few months, the overall economic environment has turned particularly challenging for India. This can be attributed to:War in West Asia: This is possibly the most important factor in the short term. If hostilities heighten further, it could not only lead to crude oil prices rising again but also constrain supply itself.Given that India imports 90% of its crude oil, higher crude oil prices alone can typically drag down domestic economic growth. As things stand, there is no clarity on how things may pan out in West Asia, and the picture keeps changing every week.Graphs, Data and Perspectives: | Amid youth protests, an anatomy of India’s employment over 10 yearsStory continues below this adMonsoon: Even though agriculture only contributes around 17%-18% of India’s total economic output (in money terms), it still engages close to 45% of India’s population. The spread and quantity of rainfall are not only the biggest determinants for India’s agricultural output but also the key factors that make or break rural household budgets.Trade deficit: India’s exports have largely been stagnant over the past few years. This means, as a country, India does not earn enough foreign currency. At the same time, India’s imports continue to be in excess of its exports, thus leading to an outflow of foreign exchange. Whether India can turn around this equation or, at the very least, reduce this gap (called the trade deficit) is a major question now.Attracting foreign investments: Weakening of foreign investments into India has been a key underlying reason for the slide in the rupee’s exchange rate relative to major currencies. Will India be able to attract foreign investments this year?Inflation and affordability: A natural corollary of higher crude oil prices is the spike in domestic inflation (or the rate at which prices go up). Higher prices reduce people’s purchasing power and drag down domestic growth.Story continues below this adUncertainty: There is no standard metric to capture uncertainty, but nevertheless, sustained levels of uncertainty — be it due to global geopolitical factors or domestic ones — undermine business confidence and hold back even domestic firms from investing in new capacities (read factories and jobs) in the economy.What’s the outlook?On economic growth, India’s outlook can be read as both better and worse, depending on the variable one looks at.The actual observed variable on the ground is called the nominal gross domestic product (GDP). It determines how much money the government can spend, how much it earns through taxes, and how much it needs to borrow to make up the gap. In common parlance, another measure is used: the real GDP growth, which is essentially the GDP growth rate after taking away the effect of inflation or higher prices.In Explained | ExplainSpeaking: Why PM Modi’s call to save forex could slow down India’s growthStory continues below this adThe way things are panning out, it is quite likely that India’s nominal GDP growth rate may be higher than in the past few years, even as its real GDP growth rate may falter.Over the past few years, India’s nominal GDP has been experiencing deceleration. This has been a matter of concern among policymakers and observers alike. That’s because this rate of growth sets the ceiling for the real GDP growth. It is also a key determinant in the profitability of India’s companies and, as a result, determines the fortunes of stock markets.But thanks to higher inflation, the nominal GDP growth rate is likely to improve this year (see chart 1). Chart 1.However, when it comes to real GDP growth rate, most estimates — both international (such as the International Monetary Fund’s recent World Economic Outlook) and national (such as by the Bank of Baroda) — expect a deceleration in the current financial year. The exact severity of the deceleration is difficult to ascertain, but most estimates peg India’s GDP to grow by anywhere between 6.4% and 6.8% (see chart 2).Story continues below this ad Chart 2.As a recent Bank of Baroda analysis noted, India’s manufacturing is likely to register a substantially lower (real) growth rate in the current year — from a growth rate of 10.5% in FY26 to 6.5%-7.5% in FY27 — partly thanks to a higher base effect and partly due to the impact of war on supply chains and overall demand.Unsurprisingly, economists also expect corporate investments to grow at a slower pace thanks to the continuing uncertainty. India’s trade deficit, too, is likely to widen, but thanks to the measures undertaken by the RBI aimed at attracting foreign capital into India, India’s overall Balance of Payment is likely to improve. This, in turn, is likely to provide support for the rupee’s exchange rate in the year ahead.Udit Misra is Senior Associate Editor at The Indian Express. Misra has reported on the Indian economy and policy landscape for the past two decades. He holds a Master’s degree in Economics from the Delhi School of Economics and is a Chevening South Asia Journalism Fellow from the University of Westminster. Misra is known for explanatory journalism and is a trusted voice among readers not just for simplifying complex economic concepts but also making sense of economic news both in India and abroad. Professional Focus He writes three regular columns for the publication. ExplainSpeaking: A weekly explanatory column that answers the most important questions surrounding the economic and policy developments. GDP (Graphs, Data, Perspectives): Another weekly column that uses interesting charts and data to provide perspective on an issue dominating the news during the week. Book, Line & Thinker: A fortnightly column that for reviewing books, both new and old. Recent Notable Articles (Late 2025) His recent work focuses heavily on the weakening Indian Rupee, the global impact of U.S. economic policy under Donald Trump, and long-term domestic growth projections: Currency and Macroeconomics: "GDP: Anatomy of rupee weakness against the dollar" (Dec 19, 2025) — Investigating why the Rupee remains weak despite India's status as a fast-growing economy. "GDP: Amid the rupee's fall, how investors are shunning the Indian economy" (Dec 5, 2025). "Nobel Prize in Economic Sciences 2025: How the winners explained economic growth" (Oct 13, 2025). Global Geopolitics and Trade: "Has the US already lost to China? Trump's policies and the shifting global order" (Dec 8, 2025). "The Great Sanctions Hack: Why economic sanctions don't work the way we expect" (Nov 23, 2025) — Based on former RBI Governor Urjit Patel's new book. "ExplainSpeaking: How Trump's tariffs have run into an affordability crisis" (Nov 20, 2025). Domestic Policy and Data: "GDP: New labour codes and opportunity for India's weakest states" (Nov 28, 2025). "ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections" (Oct 30, 2025) — A critical look at the feasibility of high-growth targets. "GDP: Examining latest GST collections, and where different states stand" (Nov 7, 2025). International Economic Comparisons: "GDP: What ails Germany, world's third-largest economy, and how it could grow" (Nov 14, 2025). "On the loss of Europe's competitive edge" (Oct 17, 2025). Signature Style Udit Misra is known his calm, data-driven, explanation-first economics journalism. He avoids ideological posturing, and writes with the aim of raising the standard of public discourse by providing readers with clarity and understanding of the ground realities. You can follow him on X (formerly Twitter) at @ieuditmisra ... Read More