Summary
DBS chief economist Taimur Baig says India and the global economy are coping better with shocks than many believe, with strong consumption and resilient growth offsetting geopolitical and inflation risks.
Despite the current geopolitical conflicts, it’s not all gloom and doom for the global and Indian economies, DBS Bank managing director and group chief economist Taimur Baig said.
While inflation has risen, demand is still holding up, Baig said in an interview with Mint, indicating that excessive focus on headwinds may have led to an under-appreciation of tailwinds, particularly strong global consumption.
India, he noted, has shown the ability to absorb external shocks and grow at a fast clip without major accommodative monetary or fiscal measures, a sign of improved macroeconomic fundamentals. “In fact, (India’s) fiscal policy is going in the right direction. Monetary policy is largely neutral… It may be tightened a bit on the margin,” he said.
Some analysts expect the Reserve Bank of India (RBI) to raise the benchmark lending rate by 25 basis points to 5.5% at its October monetary policy review, in view of an uptick in inflation driven by elevated energy prices amid the war in West Asia. Retail inflation hit a 20-month high of 4.82% in August, still remaining within the central bank’s 2-6% band.
Baig said the prevalence of fairly strong domestic demand, despite rising prices, suggests that the income situation is decent. “This is not just an India-specific phenomenon. It is visible in East Asia, and even in the US,” he said.
Headwinds, Baig reckoned, must be viewed in the context of affordability and absorbability. “Looks like every year (in recent years) we get a big macro shock—war here, pandemic there, kinetic war or trade war. Through all these shocks, the Indian economy in particular, and the global economy in general, has done better than what we have given ourselves credit for.”
Steady growth
Global growth will be well over 3% this year, and India is in the 6.5-7% trajectory, Baig said. External headwinds must not be undermined, but tailwinds, too, need not be overlooked either, he said.
Asked whether tailwinds outweigh headwinds for India, Baig said the data speaks for itself. “When we look at Nifty companies’ earnings, export-oriented firms’ performance, auto sales, two-wheeler sales, retail sales, big retail superstores, it tells us it’s an economy doing quite well,” he said.
“Can you do better? Of course. India can shoot for 8% or 9%. But given the current account issue, oil price issue, the outturn this year speaks for itself—the capacity to absorb headwinds and still keep standing, still keep growing, is there,” Baig said.
Baig warned of a rise in bond yields across major advanced economies, adding that the era of zero rates in Europe, Japan and the US is over, which will, in turn, push up borrowing costs for global companies seeking to raise funds from these markets.
“There aren’t that many ways to hedge against this higher rate environment; companies just have to get used to dealing with this,” he said.
Elevated borrowing costs could create global corporate distress or force companies to pass them on, which may exacerbate margin compression and the cost of living, he cautioned.
Domestic strengths
For the externally oriented part of the Indian economy, the outlook is unambiguously negative, but the country does not seem to be struggling to generate external liquidity, he stressed.
"The FCNR (B) scheme was successful beyond anybody's expectation,” Baig said.
India raised a record $127 billion in foreign currency non-resident (FCNR-B) deposits through a special programme between 8 June and 31 August.
Baig, however, doesn’t see much cause for worry about the predominantly domestically oriented part of the Indian economy. “RBI may tighten a bit on the margin, but not enough to dissipate growth momentum. (In fact) Its challenge lately has been too much liquidity,” he said.
Baig said that the recent appreciation of the Chinese yuan against the dollar, while the rupee has weakened relative to a year ago, has given India a competitive edge in the export market.
From a real effective exchange rate perspective, at 95-96 against the dollar, the rupee movement is not incompatible with fundamentals, he said.
Regarding the new US law that seeks to impose tariffs of up to 100% on countries buying Russian oil, Baig said it expands secondary sanctions.
“It is worrisome but looking at (US President) Donald Trump's behaviour over the last two years…a lot of announcements sound alarming, but typically the follow through has been much smaller,” he said.
Moreover, companies have turned ingenious, he said, stressing that despite reciprocal tariffs announced in spring 2025, global trade in goods and services hit an all-time record in 2025 and will hit another record in 2026.
On divergent ratings for India—Moody’s and Fitch keep it at the lowest investment grade, S&P a notch higher and a Japanese agency at A-, all with a ‘stable’ outlook—Baig said markets have a wider universe than ratings.
‘Public sector must lead AI push’
“Ratings are useful for institutional filters, but many investors look at spreads, valuation, dollar liquidity, fiscal and monetary trajectory,” he said.
Baig said India has no choice but to adopt artificial intelligence (AI). “It is here to stay. It will disrupt every part of the economy.” The US and China are in the first cohort, spending billions to develop AI models and drive innovation, while India can leapfrog—just as it did when it went from no phones to smartphones.
But there is a public sector imperative in AI development and adoption globally, he stressed.
“This (AI) is not like the iPhone or switch from phone-based internet to broadband internet, where the private sector more or less led it, and we let it happen,” he said. Even though the private sector led the creation of social media, it was allowed despite certain negative consequences. “(But) this one is so consequential. There is, in my view, absolutely no question of letting this be a private sector-led wave,” he said.
“The public sector needs to ensure the safety and security of the population, because it is so profoundly disruptive,” Baig said.
He also warned of the risks of AI weaponization and advocated focusing on open-source models to develop solutions tailored to each country.
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