30 Jan 2024

Updated: May 2026

Global Economy in 2025–26: Challenges and What It Means for Indian Businesses and NRIs

The global economic environment in 2025–26 is characterised by cautious optimism tempered by persistent structural headwinds. For Indian businesses and NRIs, understanding these macro forces is essential — they directly influence exchange rates, export demand, NRI remittance purchasing power, and investment returns. At Regi Tom Antony And Associates, we translate global macro into practical implications for our clients.

Key Global Economic Challenges in 2025–26

1. Geopolitical Fragmentation and Trade Realignment

The US-China trade tensions, continued Russia-Ukraine conflict, and the Middle East situation have accelerated a shift from globalisation to "friendshoring" — where supply chains are restructured along geopolitical lines. For India, this presents both opportunity (as a preferred manufacturing and services destination) and risk (higher input costs, commodity price volatility).

2. Sticky Inflation in Developed Economies

While headline inflation in the US and EU has moderated from 2022–23 peaks, services inflation remains elevated. The US Federal Reserve has been cautious about rate cuts, keeping global dollar liquidity tight. For Indian businesses, this means:

• A relatively stronger dollar, which supports NRI remittances in rupee terms
• Continued pressure on India's current account deficit via import costs
• Higher borrowing costs for Indian companies accessing overseas capital

3. China's Slowdown and Its India Implications

China's economic deceleration — driven by a property sector crisis, demographic headwinds, and reduced foreign investment — has global ripple effects. For Indian exporters, reduced Chinese demand dampens commodity prices. However, India benefits as manufacturers diversify away from China in sectors like electronics, pharma APIs, and textiles.

4. Artificial Intelligence and Productivity Disruption

The rapid adoption of generative AI is reshaping global labour markets. For India's IT sector — a major employer and forex earner — this creates near-term pressure on headcount growth. However, Indian companies with strong AI capabilities are well-positioned for the next phase of global outsourcing.

India's Economic Position in This Environment

Despite global headwinds, India remains one of the fastest-growing major economies. Key data points (FY2025–26):

• GDP growth: India's real GDP growth is projected at 6.5%–7% for FY2026, supported by domestic consumption and infrastructure spending
• Inflation: CPI inflation has moderated toward the RBI's 4% target band, enabling the RBI to initiate a rate-cutting cycle in early 2025
• Fiscal consolidation: The Union Budget 2025–26 targets a fiscal deficit of 4.4% of GDP, down from 5.1% in FY2024
• Capital flows: FDI and FPI inflows remain positive, supported by India's strong macro fundamentals and improved ease of doing business

Implications for NRIs

For NRIs, the global macro environment has direct personal financial implications:

• Exchange rate: USD/INR has remained in the 83–86 range. NRIs remitting in USD benefit from favourable rates. Timing of large remittances (property purchase, parental support, investment) should factor in exchange rate trends.
• NRE/FCNR deposits: With Indian interest rates remaining relatively attractive versus developed market rates, NRE fixed deposits and FCNR(B) deposits offer good risk-adjusted returns for NRIs with rupee needs.
• Equity investments: Indian equity markets have shown resilience. NRIs investing via the Portfolio Investment Scheme (PIS) under FEMA should review their asset allocation in light of global volatility.
• Property market: Indian real estate, particularly in Tier-1 cities, continues to see demand. However, NRIs must comply with FEMA regulations on property purchase — only certain property types are permitted for NRI acquisition without RBI approval.

For comprehensive NRI financial planning guidance, visit www.nriblueprint.com.

Implications for Indian SMEs

For SME exporters and importers, the current environment demands:

• Forex hedging: With USD/INR volatility, exporters should consider forward contracts to lock in rates on confirmed export receivables
• Working capital discipline: Global supply chain disruptions have increased lead times and inventory requirements — firms should review working capital limits and debtor ageing carefully
• Export market diversification: Over-reliance on any single geography (particularly China-dependent supply chains or US-dominated client bases) is a concentration risk to manage proactively
• Government incentives: RODTEP, PLI schemes, and Export Promotion Capital Goods (EPCG) benefits should be fully utilised

For SME financial advisory and Virtual CFO services, visit www.smeadvisory.in.

Frequently Asked Questions

How does a stronger dollar affect NRIs remitting money to India?

A stronger USD means NRIs get more rupees per dollar remitted — effectively increasing the purchasing power of their remittances in India. This benefits NRIs supporting families, repaying home loans in India, or making investments. However, it also means Indian imports become more expensive, which can fuel domestic inflation.

Should Indian SMEs be concerned about a global slowdown?

The degree of concern depends on export exposure. Domestically-focused SMEs are relatively insulated from global slowdowns — India's domestic consumption story remains strong. Export-oriented SMEs, particularly those serving the US and EU, should monitor order pipelines carefully and diversify their market exposure where possible.

What RBI rate changes should businesses watch in 2026?

The RBI began a rate-cutting cycle in early 2025 after holding rates elevated during the inflation management phase. Businesses should monitor the RBI Monetary Policy Committee (MPC) announcements (published six times per year) for repo rate decisions. Rate cuts reduce the cost of floating-rate loans and affect fixed deposit renewal rates.