India emerged from 2025 with an unexpectedly strong economic performance, even as geopolitical tensions and tariff rhetoric from the United States unsettled global markets. While Washington’s declarations of steep tariffs raised alarm, actual measures and market behaviour limited the shock. That allowed India to capitalise on a services boom and substantial technology investment, sustaining high growth and low inflation.
India economic resilience
Growth in India averaged around 8% in the first two quarters of the fiscal year, supported by booming IT and services exports linked to the wider AI investment cycle. Global cloud and AI players pledged sizable capital commitments to data centres, and technology firms have signalled fresh rounds of outsourcing and cloud services demand that favour India’s workforce and firms.
The US episode explains part of the story. Aggressive tariff threats in 2025 initially worried exporters and markets, but the effective tariff incidence proved far lower than the headlines suggested. Many US importers front-loaded purchases and used inventory buffers, while exporters absorbed part of the cost. Analysts estimate only a fraction of threatened tariffs was passed to US consumers, tempering inflation and enabling central banks to ease policy, which in turn supported equities and investment flows.
India benefited from this mix. Low inflation and manageable current account dynamics—headline inflation near historic lows and a current account deficit comfortably contained—gave policymakers room to foster growth. Services exports, particularly in software and digital services, have been the primary conduit for demand. The country’s deep pool of STEM graduates has proved attractive to multinational technology firms seeking skilled labour to scale AI-related operations.
Private investment news has reinforced sentiment. Major global technology companies announced plans totalling roughly $67.5 billion for new data centres and cloud infrastructure, a portion of which will be routed through or built in India and its partner markets. These capital flows support long-term capacity and help diversify global supply chains that firms are reshaping in response to geopolitical uncertainties.
Nonetheless, caution is warranted. The 2025 upswing relied heavily on capital-intensive AI investment, which creates relatively few direct jobs. The United States saw rising unemployment even amid brisk GDP expansion, a reminder that headline growth does not always translate into broad-based job creation. If AI investment expectations moderate, capital spending could cool and financial markets could retrench.
For India, risks from a global slowdown remain real. A sharper contraction in world GDP or a renewed rise in tariffs that flows through to consumers would hurt export demand and inward investment. Yet India’s macro position—solid reserves, contained inflation and fiscal prudence—alongside a large domestic market, offers important cushions. The country’s competitive edge in services and its supply of skilled graduates make it one of the few developing economies likely to outperform peers even under adverse external conditions.
Looking ahead to 2026, the balance of probabilities suggests India will fare better than many if global conditions deteriorate. That outcome is not guaranteed; much will depend on how trade policies evolve and whether AI investment sustains current levels of optimism. For now, India’s combination of robust domestic demand, growing services exports and strategic tech investment underpin a cautiously optimistic outlook.
Key Takeaways:
- India sustained strong growth in 2025, driven by services exports and AI-linked investment, highlighting India economic resilience.
- US tariff threats produced lower-than-expected impacts, supporting global growth and dampening inflationary pressures.
- Major tech investments and a large STEM talent pool position India to weather a potential global slowdown.
- Risks remain if global GDP contracts and tariffs pass more fully to consumers, but India’s macro buffers offer protection.
