India & The New World

 

IMF Bares the New World That India Must Conquer

Deepak Razdan

23 April, 2025

In spite of its unique challenges, India emerged as the world’s fastest growing economy recently. There were predictions how soon India would be among the world’s top three economies.

Suddenly, the world changed. It is this New World that India has to appreciate and conquer to continue its march towards becoming a developed nation. US President Donald Trump made a series of policy announcements and then gave a set of new trade tariffs for the whole world.

As the tariffs showed effect, Mr Trump offered a 90-day pause and talks with over 70 countries for new trade agreements. The global trade war was, however, already begun and gave birth to the New World, where every country is worried about its financial health, and has to take decisions based on self-interest only.

The International Monetary Fund (IMF) on 22nd April, 2025 released its World Economic Outlook (WEO), 2025 which showed how the world looked like after the US tariffs’ impact.

The IMF Outlook has recorded how deeply the world economies are hurt by the punitive US tariffs and how completely they are transformed by them.

India will face big challenges in completing trade agreements with these economies which are currently trying their best to save their own financial status. Trade pact talks by India are in advanced stages with the US, the European Union and the United Kingdom, besides some other nations. 

Among the advanced economies, the United States is likely to be the biggest sufferer of its own tariff war and its growth rate of 2.8 per cent in 2024 is likely to lower down to 1.8 per cent in 2025 and then to 1.7 per cent in 2026, the IMF Report has said. The US being the largest consumer economy in the world, its condition will impact every other country in the world.

Germany had a negative growth of minus 0.2 per cent in 2024 and is expected to improve to just zero per cent growth in 2025, with further improvement to 0.9 per cent in 2026. France had 1.1 per cent growth in 2024 and it is expected to fall down to 0.6 per cent in 2025, with a likelihood of improvement to just one per cent growth rate in 2026.

The IMF Outlook says: Italy had 0.7 per cent growth in 2024, and is expected to have 0.4 per cent in 2025 and 0.8 per cent in 2026. Spain had 3.2 per cent in 2024, and is likely to have just 2.5 per cent in 2025 and 1.8 per cent in 2026. Japan is likely to improve from 0.1 per cent in 2024 to 0.6 per cent in 2025 and 2026 as well.

The United Kingdom is likely to maintain its 1.1 per cent growth of 2024 in 2025 also and improve to 1.4 per cent the next year. Canada’s rate of growth is likely to fall from 1.5 per cent in 2024 to 1.4 per cent in 2025 and then improve to 1.6 per cent in 2026.

Among emerging and developing Asian economies, China had a growth rate of five per cent in 2024, and it is expected to come down to four per cent in 2025 and then stay at the same level the next year also.

China being the second largest economy in the world, its growth reduction by one per cent will mean a lot in terms of its consumption and exports capability.

India had 6.5 per cent growth rate in 2024 and is expected to have 6.2 per cent in 2025 and 6.3 per cent in 2026, according to the IMF forecast.

Russia had 4.1 per cent growth in 2024 and is likely to have just 1.5 per cent in 2025 and 0.9 per cent in 2026. Brazil’s growth rate of 3.4 per cent in 2024 will lower down to just two per cent in 2025 and then continue with the same rate in 2026.

Mexico, much abused in Mr Trump’s speeches for illegal immigrants in the US, had 1.5 per cent growth rate in 2024 and will have minus 0.3 per cent in 2025 and then 1.4 per cent in 2026.

This is a world hurt by the US trade tariffs and the uncertainty they have created in the world trade environment. Trade is wealth and if trade stalls trying to comprehend the new tariffs, how can there be wealth creation. Not only industry is closed, but jobs are lost.

WTO’s Global Trade Outlook, a few days earlier, had said that based on the situation as of 14 April, after the suspension of “reciprocal tariffs” by the United States, the volume of world merchandise trade is now expected to decline by 0.2 per cent in 2025, before posting a modest recovery of 2.5 per cent in 2026.

Significantly, WTO said, the new estimate for 2025 is nearly three percentage points lower than it would have been without the recent policy shifts, and marked a significant reversal from the start of the year.

Introducing the World Economic Outlook Report, IMF said “Intensifying downside risks dominate the outlook, amid escalating trade tensions and financial market adjustments,” and warned, “Divergent and swiftly changing policy positions or deteriorating sentiment could lead to even tighter global financial conditions.”

“Ratcheting up a trade war and heightened trade policy uncertainty may further hinder both short-term and long-term growth prospects,” the Report said. International cooperation was the need of the hour, otherwise progress towards a more resilient global economy could be jeopardised.

The swift escalation of trade tensions and extremely high levels of policy uncertainty were expected to have a significant impact on global economic activity, the IMF said.

As per the latest tariff levels, global growth is projected to drop to 2.8 per cent in 2025 and three per cent in 2026. This will be down from 3.3 per cent for both years projected in the IMF’s January, 2025 Update. The growth rate will be even lower than the 3.7 per cent global growth average of 2000-19.

Under the circumstances, the New World is engaged in settling its affairs first. The US talks with over 70 countries will be dictated by its interests. The US is keen to reduce its deficit with most countries and save the money for US citizens and their welfare.

The EU is worried about the Ukraine war and is not clear how balanced its trade agreement with the US is going to be. Mr Trump assured Italian Prime Minister Giorgia Meloni in White House that he was confident there would be a good agreement with the EU.

Mr Trump’s assurance has to be seen in the context of what he had said about the EU in his 2nd April speech on the tariffs, comparing EU’s behaviour with that of a foe for restricting US products’ entry into the EU territories. Mr Trump firmly believed an unfair trade system had ripped off the US.

If the UK and EU members do not arrive at happy agreements with the US, how would India get favourable agreements with the EU or the UK, or for that matter, with many other countries. China is an area where most countries are not even talking in clear language.

India got a chance to present its case before US Vice President J D Vance during his short visit to India from 21 April. Prime Minister Narendra Modi hosted Mr Vance at his residence and the two leaders “welcomed the significant progress in the negotiations for a mutually beneficial India-US Bilateral Trade Agreement focused on the welfare of the people of the two countries.”

They noted the two countries were making continued efforts towards enhancing cooperation in energy, defence, strategic technologies and other areas also.

In his speech in Jaipur yesterday, Mr Vance made valuable comments to clarify the American point of view: “I come here with a simple message: Our administration seeks trade partners on the basis of fairness and of shared national interests.”

“We want to build relationships with our foreign partners who respect their workers, who don’t suppress their wages to boost exports but respect the value of their labour,” he said.

Mr Vance said “We want partners that are committed to working with America to build things, not just allowing themselves to become a conduit for trans-shipping others goods.”

He said “Now, critics have attacked my President, President Trump, for starting a trade war in an effort to bring back the jobs of the past, but nothing could be further from the truth. He seeks to rebalance global trade so that America, with friends like India, can build a future worth having for all of our people together.”

He said “when President Trump and Prime Minister Modi announced in February that our countries aim to more than double our bilateral trade to $500 billion by the end of the decade, I know that both of them meant it, and I’m encouraged by everything our nations are doing to get us there.”

Mr Vance said “As many of you are aware, both of our governments are hard at work on a trade agreement built on shared priorities, like creating new jobs, building durable supply chains, and achieving prosperity for our workers.”

He said at his meeting with Prime Minister Modi on Monday, he and Mr Modi made “very good progress on all of those points, and we are especially excited to formally announce that America and India have officially finalized the terms of reference for the trade negotiation.”

“I think this is a vital step. Thank you. I believe this is a vital step toward realizing President Trump’s and Prime Minister Modi’s vision because it sets a roadmap toward a final deal between our nations,” he said.

Americans want further access to Indian markets, he said. “This is a great place to do business, and we want to give our people more access to this country. And Indians, we believe, will thrive from greater commerce from the United States. This is very much a win-win partnership and certainly will be far into the future,” the US Vice President said.

“I believe there is much that America and India can accomplish together. And on that note, I want to talk about a few areas of collaboration today, how India and the United States can work together: first, perhaps most importantly, to protect our nations; second, to build great things; and finally, to innovate the cutting-edge technologies both our countries will need in the years to come,” Mr Vance said.