By: Udaibir Das
This article originally appeared in the OMFIF on January 21, 2025.
What the year means for India’s ascent
The historical resonance of 2025 cannot be overstated. It marks the halfway point to achieving the United Nations’ Sustainable Development Goals, reflecting progress and challenges in poverty alleviation, gender equality and climate action. It is an especially pivotal year in advancing regional commitments, such as the Addis Ababa Action Agenda on Financing for Development, which will also evaluate progress in mobilising resources.
Amid these global shifts, India stands at a critical juncture. The world’s most populous democracy faces a turbulent landscape of geopolitical rivalries, technological shifts and the urgency of climate action. The question remains: will global economic forces propel India toward leadership or will they impede its ascent?
Since the Middle Ages, India’s economic journey has been shaped by its participation in global trade and financial shifts. After a period of insulation, the 1990s marked its gradual reintegration into the global economy. Yet today, the stakes are higher than ever. With a slowing global economy and unpredictable global financial conditions, India must navigate external headwinds while fostering domestic resilience.
Geoeconomic recalibration
The world’s economic order is increasingly fragmented, driven by rivalries shaping trade, technology and financial flows. This disruption creates both risks and opportunities for India. The country’s recent push to settle trade in rupees instead of dollars indicates an ambition to assert greater economic sovereignty. However, limited international adoption of the rupee and complex relationship management across competing blocs emphasise the challenges of asserting such sovereignty in a fragmented world.
The global economy is beginning to reflect the effects of shifting demographics, including ageing populations, uneven consumption patterns across sectors and regional variations in savings behaviour. Some areas are seeing elevated savings post-pandemic while others are experiencing declines. Additionally, advanced economies are projected to grow at a modest 1.4% in 2025, while India’s economy is expected to expand by at least 6.3% – outperforming advanced and emerging markets. However, slower growth in advanced economies could dampen demand for Indian exports, particularly in IT and manufacturing sectors.
The challenge lies in sustaining domestic reform momentum while recalibrating India’s global strategy. Domestic self-sufficiency and external engagement must work together to ensure India’s resilience against global uncertainties over the coming decades.
The debt-climate-development nexus
Compounding these challenges is the issue of debt. At $307tn, global debt has reached unprecedented levels, heightening vulnerabilities. For many economies, supply-side bottlenecks and climate-related shocks exacerbate fiscal pressures, reducing their capacity to fund development and climate adaptation. India’s debt-to-gross domestic product ratio – at approximately 83% – is lower than that of many advanced economies but remains elevated compared to pre-pandemic levels. Fiscal prudence will therefore be critical to ensuring sustainable growth. Effectively absorbing budgetary resources as well as leveraging external financing for infrastructure and renewable energy projects will be key to addressing long-term development needs.
Moreover, emerging markets faced nearly $1tn in capital outflows over the past year, exposing the fragility of global investment flows. While India’s macroeconomic fundamentals have provided some insulation, managing the volatility of international capital markets remains a challenge. Foreign exchange reserves, though substantial, may fall short of the scale and flexibility required to meet India’s funding needs in a highly competitive global environment.
Advancing climate resiliency
The climate crisis presents both a challenge and an opportunity for India. As one of the most climate-vulnerable nations, India faces the dual task of mitigating risks and leading green energy transitions. Initiatives like the International Solar Alliance highlight India’s commitment to shaping the global green agenda.
However, climate finance remains a critical bottleneck. COP30 will test India’s ability to advocate for equitable finance mechanisms while balancing domestic fiscal priorities. India must align its climate resilience efforts with broader domestic development goals to lead on climate action effectively.
The digital revolution
There is, however, an avenue for India to assert global leadership and that is in the frontier of space technology, artificial intelligence and digital finance. The Unified Payments Interface, a homegrown digital payments system, has revolutionised financial inclusion, particularly in rural areas, and inspired adoption by other countries. This positions India as a global innovator in digital finance.
India must leverage its digital revolution to achieve economic objectives, create high-quality jobs and boost productivity to build on this momentum. However, this transformation carries risks, including cybersecurity threats, consumer protection concerns and regulatory complexities. Robust institutions, effective governance and resilient capital markets are essential to cement India’s leadership in digital finance and redefine its future.
What 2025 holds
2025 will be a litmus test for India’s ability to align immediate policy actions with its long-term vision of becoming a developed, equitable and sustainable nation by 2047 – its centenary as an independent republic. Achieving this vision requires clear, measurable milestones and, most importantly, broad social and political consensus.
India’s transformative reforms in labour markets, climate policy or digital governance must address public skepticism and ensure fairness, inclusivity and trust in institutions. Without this foundation, resistance to change could undermine progress.
Beyond its domestic goals, 2025 will be pivotal for India’s leadership in advancing the global South’s priorities and shaping Brics’ economic agenda. Addressing regional inequalities, managing inflation and unemployment, and laying the groundwork for sustainable growth will demonstrate India’s capacity to deliver on its promise of inclusive development.
India thus stands at a critical moment in its modern economic history. Its choices in 2025 will determine its trajectory toward 2047 and its influence on the global economic landscape. India’s rise as a global power is not preordained – it is a deliberate outcome of action, adaptability and durable implementation. As Indian philosopher and reformer, Swami Vivekananda, urged, ‘Arise, awake, and stop not until the goal is reached.’
Udaibir Das is a Visiting Professor at the National Council of Applied Economic Research, a Senior Non-Resident Adviser at the Bank of England, a Senior Adviser of the International Forum for Sovereign Wealth Funds, and a Distinguished Fellow at the Observer Research Foundation America.