New Delhi [India], March 18 (ANI): While corporate performance remains below par, key factors such as recovering rural demand, lower income tax burden, falling food inflation, expected rate cuts, and increased public spending are likely to drive economic activity in the coming months according to a report by CareEdge Ratings.

However, external risks will require close monitoring, the global economy is facing significant turbulence due to an ongoing tariff war, causing fluctuations in growth, inflation, and financial markets, however, despite these challenges, Indian firms have shown improvement in sales and profitability in Q3 FY25.

The report highlights three major risks that could arise due to the global tariff war and its repercussions. Trade tariffs and retaliatory measures are expected to drive up global prices, limiting the Federal Reserve's ability to cut interest rates.

Elevated US interest rates will strengthen the dollar, leading to capital outflows from emerging markets like India, constraining the Reserve Bank of India's (RBI) ability to stabilize the rupee and reduce interest rates domestically.

Despite high capacity utilization in several sectors, the much-anticipated private investment recovery in India remains uncertain. Increased global trade pressures and competition from Chinese goods in non-US markets could push domestic manufacturers into a defensive strategy, focusing on protecting market share rather than expanding capacity.

US tariffs could prompt India to shift its import strategy, increasing direct imports from the US while reducing reliance on other nations. Multinational corporations may move production closer to home, reshaping global supply chains.

India could see growth in sectors like oil and gas imports, defence, and nuclear energy equipment. Higher freight and logistics costs may further contribute to inflationary pressures.

Despite these challenges, India has certain advantages that could help mitigate the negative impact of global uncertainties.

The recent 3-4 per cent depreciation of the rupee could provide Indian exporters with greater leverage when negotiating with US clients. India has opportunities to gain market share in sectors like electric vehicles and solar energy, where US tariffs on Chinese products have significantly increased.

Additionally, the government is actively working on a trade agreement with the US to secure tariff reductions for Indian exports while offering concessions where necessary.

The US's strategy to reclaim its manufacturing dominance through tariffs is expected to undergo multiple shifts before reaching a stable medium-term balance. Meanwhile, Indian firms will need to navigate these uncertainties strategically to sustain profitability and growth. (ANI)