India continues to remain the world’s fastest-growing major economy this year despite rising geopolitical tensions and the economic fallout due to the Iran war, according to the United Nations. The world organisation projected a robust 6.4 per cent growth rate for the country even as the global economy faces mounting uncertainty.
The latest assessment, released in the United Nations’ mid-year update to the World Economic Situation and Prospects report, highlights India’s economic resilience at a time when global growth projections have weakened sharply due to disruptions linked to the Middle East crisis, energy insecurity and inflationary pressures.
While the UN lowered the overall global growth forecast to 2.5 per cent, it identified India and China as the principal drivers supporting world economic momentum amid deteriorating international conditions.
UN highlights India’s strong structural growth drivers
Ingo Pitterle, the UN’s senior economist heading its Global Economic Monitoring Branch, said India’s growth trajectory continues to be supported by strong domestic fundamentals despite external risks emerging from the Iran conflict.
“We have seen structurally very robust growth in India, which has been driven by consumer demand, by public investment, but also by strong performance in services exports,” Pitterle said.
“These main drivers will largely remain intact,” he added while briefing the media on the report.
Shantanu Mukherjee, director of the UN’s Economic Analysis and Policy Division, also stressed that India’s diversified economic structure has helped strengthen its ability to absorb external shocks.
“India is a large economy well diversified,” Mukherjee said, adding that structural improvements and stronger tax revenues have added to economic stability.
UN says India has buffers to manage energy disruptions
The report noted that the Iran war and the disruption of energy movement through the Strait of Hormuz have created serious challenges for the global economy, particularly by intensifying concerns over fuel prices, inflation and supply chains.
However, the United Nations said India possesses several structural safeguards that may soften the direct economic impact of rising crude oil prices.
“India’s diversified energy sourcing and structural buffers, including its refining infrastructure, ample foreign exchange reserves, and fiscal space to manage fuel prices, may limit the direct pass-through of higher crude prices,” the report stated.
The report described the Middle East conflict as a major shock to the world economy that has tested global resilience and complicated sustainable development prospects worldwide.
“The crisis in the Middle East has delivered another major shock to the world economy, testing the resilience of global growth, stoking inflationary pressures and further challenging the prospects for sustainable development,” it said.
India and China emerge as key pillars of global growth
According to the UN projections, India is expected to remain ahead of all major economies with 6.4 per cent growth this year, while China is projected to record 4.6 per cent growth before moderating slightly next year.
Among advanced economies, the United States is expected to grow at two per cent, while the European Union’s growth rate has been projected at 1.1 per cent this year.
UN flags risks from global financial tightening
Even while maintaining a strong outlook for India, UN economists cautioned that the country is not completely insulated from the wider fallout of the Iran war and the tightening global financial environment.
Pitterle pointed to vulnerabilities arising from remittance flows and potential monetary complications linked to rising international uncertainty.
“For example, remittances add to some vulnerability, also a global financial tightening will make monetary policy more complicated,” he said.
Still, he maintained confidence in India’s medium-term trajectory.
“We do acknowledge some vulnerabilities and risks going forward, but in our baseline, we assume what I would characterise as solid growth of around 6.4-6.5 per cent,” Pitterle added.
Mukherjee also warned that rising import costs linked to energy, freight, and petrochemical products could eventually increase pressure on Indian manufacturers and exporters.
“When import costs go up, if these are going into producing your exports, into your manufacturing, your exports could also suffer because import costs are going up,” he said.
He added that rising logistics and fuel costs could gradually affect business operations and production expenses across sectors.
“That’s why we think that looking not just at the consumer price index but the producer price index is important to get a gauge on what’s going on,” Mukherjee said.
At the same time, he underlined that India still retains policy flexibility and economic buffers to manage emerging shocks better than many other economies.
“Like many other large economies, India has some space to manage these, which is why I think we’ve been saying all along that a lot depends on whether you can manage these shocks within existing buffers before your inventories, your fiscal space, et cetera, run out. That’s crucial,” Mukherjee added.