Niti Aayog member Arvind Virmani on Saturday said that the downside risks to the Indian economy remain high on account of global uncertainties and developments in the US and China.

Virmani, a former chief economic adviser to the ministry of finance and principal adviser, Planning Commission, had earlier said that the economy was expected to grow at 7 per cent in FY25.

“My forecast from the beginning of the year was 7 per cent plus-minus 0.5 per cent, which means between 6.5-7.5 per cent. Now I am changing this. I did not anticipate the impact of political uncertainty created by the US elections. Everybody I have talked to in the US is waiting to see what will happen. This uncertainty also indirectly affects us because it affects Europe and China and there could be decisions taken by the EU, UK which could affect us,” Virmani said on the sidelines of a session organised by the Merchants Chamber of Commerce in Calcutta.

From reciprocal tariffs to immigration policies, analysts in India are keeping a close watch on the potential impact of the policy decisions of the Trump administration on Indian economy.

With US bond yields on the rise (from 3.65 per cent on September 8, 2024 to 4.6 per cent on January 17, 2025), there is also an outflow of investment by foreign institutional investors from emerging markets.

“In any other market economy when the capacity utilisation goes down, there is a reduction in investment; but not in China. I must say I did not anticipate that also,” Virmani further said.

China’s state news agency Xinhua on Friday reported that the country’s fixed asset investment went up 3.2 per cent year-on-year in 2024, while its economy grew 5 per cent in 2024, meeting the government’s target. Further, the country saw a 9.9 per cent increase in new foreign investment firms in 2024, even as the FDI saw a 27.1 per cent decline year-on-year.

“So the consequence is a huge rise in risk aversion and uncertainty, which is impacting India’s growth and now the downside risk is clearly much higher. So, given the advanced estimate of 6.4 per cent, I will say it will be more towards 6.5-7 per cent. I don’t think it will be as low as 6.4 per cent,” he said.

Virmani further said that some states in India has been able to do better in securing manufacturing investment, including attracting foreign direct investment. This has prompted the Niti Aayog to look into the different policies of the states and make a list of best practices which can then be reviewed by other states to attract investments.