Global Macro Overview: Economic Growth Trajectories of the US and India in 2025

The global economic landscape presents a volatile market, with distinct challenges and opportunities shaping the futures of major economies. As we analyse recent trends, a clear divergence emerges between the United States and India. While the US economy grapples with fiscal pressures and market imbalances, India continues to demonstrate robust growth and strategic resilience. A deep dive into these two powerhouses reveals key insights for investors and policymakers alike.

US Economy: Navigating Fiscal Strain and Market Concentration

The US economy, after a surprising contraction in the first quarter, rebounded in the second. This recovery was largely driven by two factors:

•  Decrease in imports following new tariffs and
•  Significant surge in AI-led investments. 

Notably, the largest seven US technology firms are now investing a combined amount equal to the remaining 247 major companies, highlighting a growing concentration of capital.

This sustained expansion has pushed the fiscal deficit to mid-single digits, with total debt projected to exceed USD 38 trillion. The mounting pressure has already triggered a government shutdown, blurring the lines between the US and some emerging markets in terms of fiscal discipline.

While imports have moderated, the overall trade deficit (goods and services combined) has widened by 31%, indicating that tariffs have less impact on narrowing the gap. The core challenge lies in domestic manufacturing capacity. Imposing tariffs can slow imports, but if local production cannot meet demand, consumers inevitably return to imports, even at higher prices. Over time, this tariff burden will largely fall on US consumers, and is deferred but unavoidable.

What it Indicates

Signs of economic strain include:

• Job openings falling below the number of unemployed for the first time since 2020 (U.S. Bureau of Labor Statistics, September 2025),
  
• A 20% increase in corporate bankruptcies YTD,
  
• A 12% depreciation of the US dollar, marking its steepest annual fall since the 1970s.

In contrast to these headwinds, US equity markets have remained resilient, almost entirely propelled by the performance of a few large-cap companies, underscoring the “big is getting bigger” trend.

The Indian Economy: Sustained Growth and Strategic Resilience

India’s economic growth curve remains consistent in contrast to the US economy. Fitch forecasts FY26 growth at 6.9%, while the reports have reaffirmed India’s rating with a stable outlook. Industrial production growth 4% in August 2025, retail inflation rose modestly to 2.07%, and the manufacturing PMI eased slightly to 57.7 in September 2025, still indicating strong expansion.(Source 1)

India’s share in global GDP continues to expand. Between 2025 and 2030, the country is expected to contribute approximately 19% of the incremental global GDP growth on a purchasing power parity basis. The first-quarter GDP growth of 7.8% comfortably beat expectations, prompting multiple upward revisions from global rating agencies.(Source 3)

A minor challenge lies in GST collections, which are growing slightly below nominal GDP. The slowdown was partly influenced by monsoon disruptions and the impact of recent GST reforms. Despite these short-term fluctuations, India’s consistent fiscal discipline and growth have significantly improved global market confidence. This is reflected in India’s first credit rating upgrade in 18 years and the narrowing spread between its bond yields and US yields.

Trade relations with the US have become strained, following the imposition of an additional 25% US tariff on Indian goods, citing imports of Russian oil. The tariffs impact several labor-intensive Indian sectors, including textiles, pharmaceuticals, and footwear, all of which are critical for employment.

Government Actions and Resulting Outcomes

The largest US technology firms generate significant revenues from the Indian market, and this geopolitical tension has encouraged the Indian government to promote homegrown alternatives. To counteract the tariff’s impact, the government has launched several domestic stimulus measures, including: ₹1 lakh crore income tax rebate for taxpayers [Source 9],

• ₹48,000 crore in net GST cuts this year [Source 7],
• A 1 percentage point cut in interest rates, easing EMIs by ₹1-1.2 lakh crore [Source 10],
• The 8th Pay Commission, injecting ₹2.4-₹3.2 lakh crore annually into household income [Source 11], and
• The ban on gaming saves roughly ₹10,000-₹12,000 crore monthly (Confirmation of the ban on real-money gaming [Source 12]).

These actions are designed to boost household disposable income and ensure that the benefits remain within the Indian economy. While back-channel negotiations are underway with the US, the government is also developing a credit guarantee scheme for affected sectors. These collective efforts are expected to offset most of the tariff-related pressures by the 2027 fiscal year, though the current year may experience a mild impact on growth.

Key Takeaway

In summary, while the US economy faces significant fiscal and structural headwinds, India’s disciplined and robust growth continues to stand out. This divergence underscores a shifting global economic balance and highlights India’s increasing resilience on the world stage.

Reference

1. Fitch raises India’s growth forecast to 6.9% for FY26 on strong Q2 performance
2. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2172702
3. Year-on-year inflation rate based on All India CPI for the month of August, 2025 is 2.07% – MOSPI
4. HSBC India Manufacturing PMI revised down to 57.7 in September 2025 – Trading Economics
5. India’s GDP Surge: Driving the Growth Story (7.8% in Q1 FY 2025-26) – PIB
6. S&P upgrades India’s sovereign rating to BBB / Stable: A first upgrade in 18 years
7. New GST Rates in India 2025: List of Goods and Service Tax Rates, Slab and Revision
8. US authorities implemented a 25% supplementary tariff on Indian exports as a consequence of Russian oil acquisitions
9. India’s net direct tax collection rises 6.33% to over ₹11.89 lakh crore till October 12
10. The Economic Impact of Changing Loan Rates in 2025 (Rate cuts and EMI impact)
11. 8th Pay Commission 2025: Fitment Factor, Pay Matrix, Salary Structure and Hike
12. Lok Sabha clears Bill that bans real money gaming