India’s growth story hasn’t stopped, even while the Russia-Ukraine war, tensions in the Middle East, and trade problems are happening. While advanced economies flirt with stagflation and slower trade, India’s GDP growth is well above the global average. This is not because of one policy trick, but because of a number of domestic factors, such as strong private consumption, steady demand from farms to cities, and well-planned macroeconomic policy. The end effect is a picture of a big, complicated economy that has learnt to handle shocks from other countries instead of just passing them on to its own households.
The wider picture around the world
Since the commencement of the Russia–Ukraine conflict, global growth has been slowed by supply chain problems, rising energy costs, and less money. The IMF and other international organizations now think that the world’s GDP would expand by about 3% in the late 2020s, with wealthy economies only reaching 1–2%. In this perspective, India stands out since multilateral agencies still see its real GDP growing at about double the world rate, with forecasts for 2025 and 2026 clustering around the mid-six percent level.
The difficulty for India has never been just about black-and-white growth rates. It’s been about making sure that growth is inclusive, doesn’t cause inflation, and isn’t too affected by price spikes in oil and fertilizer that always come from Europe and the Middle East. The question is simple: how has a country that relies so much on energy imports and global investment flows been able to stay so stable?
Steady GDP: More “produced in India” than brought in
The strength of India’s headline growth rate is one of the most obvious evidence of economic strength. First projections for FY26 say that India’s real GDP will expand by roughly 7.4 percent, mostly because of strong demand from within the country. Final private consumption spending, which is what Indian households and private enterprises actually spend, now makes up more than 61% of GDP. This is the biggest share in more than a decade.
There is a real-life story behind those dry numbers: people are confident enough to buy anything from scooters and cellphones to restaurant meals and clothes for the festival season, even though oil prices and geopolitical risk are making global markets nervous. High-frequency indicators like e-way bill generation and toll collections have grown by double digits year over year in the last several quarters. This suggests that logistics and mobility on the ground are supporting this story of ongoing demand.
So what is making that demand? A big part of it is that the economy is healthier: inflation is getting closer to the central bank’s goals, planning documents show that inflation will average around the low-4 percent range in FY26, and food prices have gone down, which has made many consumers’ real purchasing power better. In a world where people in other countries are cutting down on spending, India’s middle class and rural upward-movers seem to be buying more, not less.
Domestic demand as the base
When things go wrong throughout the world, many economies naturally look to other countries for help, whether it’s cheaper imports, foreign investment, or more loans. Instead, India has relied on what it knows best: its own people.
Food security and rural areas: Agriculture has been a silent stabilizer. According to second-advance forecasts for 2024–25, food-grain output would reach a record 330.9 million tonnes, which is about 5% more than the previous year. Strong production of wheat and other grains, together with favorable monsoon conditions in important areas, has helped keep food prices from rising too quickly. That implies that farmers in India’s rural economy can sell into bigger markets, and supply going to cities stay pretty constant even when global grain prices are unstable.
Urban consumption is catching up: Urban India, which has traditionally been supported by the services sector, has also seen stable demand. In the last several months, the organized manufacturing and services sectors have seen a lot of job creation. PMI-based polls show that hiring is at one of the quickest rates in years. That means that paychecks are going to malls, restaurants, and streaming services.
Government-driven activity: The state hasn’t just sat back and watched. The government has spent money on roads, ports, and electrical infrastructure, which has kept construction and logistics busy. The government has also spent money to keep the banking system liquid. The Reserve Bank of India put almost ₹5.5 lakh crore in long-term liquidity into the economy through a mix of open-market operations and FX-swap auctions in the first quarter of 2025 alone. This made sure that banks didn’t suddenly stop lending just as private demand started to rise.
Together, these three things—a good farm season, a strong services-led labor market, and patient public-sector spending—have established a “double-engine” economic model. This means that both consumption and capital formation keep going even when global trade slows down.
Getting through the consequences from Russia and Ukraine
The war between Russia and Ukraine had an effect on India as well. India is a big net importer of crude oil and uses fertilizers and some industrial inputs, thus it felt the effects of increasing energy and input costs more than other countries. But India’s response was both reactive and, over time, more strategic than that of some of its rivals in emerging markets, which suffered steep drops in their currencies and significant rises in inflation.
Energy replacements and trade diversification: India bought a lot more cheap Russian crude oil, which helped ease the sting of increasing oil prices right away. The government has also been working on making import routes and refining capacity more diverse so that gasoline shortages don’t happen all throughout the country when one corridor (such the Black Sea or the Middle East) is disrupted. India’s refining capacity has developed to become one of the greatest in the world. This lets it process a wider range of crude grades and keep the availability of indigenous products consistent.
Managing inflation: The RBI and the central government have had to tread a fine line between keeping prices in check and encouraging growth. By early 2025, CPI inflation will be in the middle of the 3% range. Food category inflation will even be negative because of good harvests and stronger supply-side management. That has helped lessen the pain of rising fuel and fertilizer prices.
But there are still strategic questions. If global supply chain risk rises, a 10% rise in oil prices might still slow GDP growth by a few basis points and somewhat raise inflation. In this way, India’s resilience doesn’t mean it’s immune; it just means it’s more equipped than many of its rivals.
Tensions in the Middle East and the energy crisis
The Russia-Ukraine war was the first big test of India’s ability to handle shocks from outside. The most recent flare-ups in the Middle East have put even more strain on it. The country gets more than 80% of its crude oil and a large part of its liquefied petroleum gas (LPG) from other countries, most of which comes through the Strait of Hormuz. When that chokepoint becomes contested, the chances of shipment delays, higher insurance costs, and possibly supply interruptions go up.
Recent figures suggest that the price of crude oil on the international market is around $100 a barrel. In the second half of FY26, India’s average import price was higher than the Reserve Bank’s conservative estimates. Some market-based estimates say that a 10% spike in such costs might raise inflation by about 30 basis points and slow growth by a similar amount.
That friction is already clear in regular firms. Some stainless steel and metal processing plants have said that they are working at less than full capacity because there are problems with the supply of industrial LPG and propane. Restaurants and small-town food enterprises that depend on commercial LPG have said they could have to close for a short time if the shortage continues.
India has also done things that show how strong it is becoming. The administration estimates that crude oil is now coming from around 40 different nations. around 70% of these imports are now effectively going around the Strait of Hormuz, up from about 55% before. Refineries are working at full capacity, and the country has built up enough crude oil stocks to function as a buffer. These changes may not get rid of all volatility right now, but they do give India more room to handle shocks without falling into a full-blown balance-of-payments crisis.
This makes me wonder: in a world where energy and supply chain shocks happen all the time, how much can a country depend on imports without putting its own stability at risk?
Discipline in policy and flexibility in money
The institutions that protect resilience are what make it robust. India’s ability to deal with global tailwinds has also depended on good fiscal management and a central bank that has strived to stay ahead of the curve.
The RBI has employed a mix of FX-swap auctions, longer-term variable-rate repo mechanisms, and outright open-market operations to keep the banking system from getting too tight on liquidity. By the beginning of April 2025, the system had gone from having too little money to having too much—about ₹1.5 lakh crore. This means that banks can lend more money without raising interest rates quickly.
The rupee has also stayed rather stable compared to other major emerging-market currencies, even as global investors have backed out of Indian stocks. In early 2025, there were a lot of net foreign portfolio investment outflows, but they weren’t big enough to start a currency crisis.
Fiscal policy has also been a factor. The most recent tax breaks related to the budget are expected to increase consumer spending and add a few tenths of a percentage point to GDP. However, these benefits could be partly offset by uncertainties over U.S. tariff measures. India is still dealing with a complicated web of trade disputes, including a recent round of U.S. tariffs on specific Indian exports. This adds another layer of risk to export-driven sectors like gems and jewelry.
Space for self-reflection and making changes
India is strong, yet it does have certain problems. The country’s reliance on imported energy, especially LPG and LNG, is still a fundamental weakness. So does the fact that its fertilizer and other agricultural supplies are affected by shipments from the Middle East. If the rupee falls dramatically or the RBI has to hike rates more than many think it will, a long conflict in that area might still slow growth.
Another question is whether India’s economic model can keep relying so largely on domestic demand without more exports and improvements in industry. External-sector data suggest that merchandise exports are only slightly higher than last year, while imports have expanded quicker. This shows that the country still depends on foreign inputs and capital equipment. That doesn’t mean it’s terrible, but it does suggest that India’s ability to handle problems in the outside world is still a work in progress.
India’s hidden strength: how domestic demand and policy kept the economy steady during global crises
