Diversify Now

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Context

The Services Purchasing Managers' Index (PMI) surged to 59 in February, rebounding from a 25-month low of 56.5 in January, while manufacturing PMI declined to a 14-month low of 56.3. Despite expansion in both sectors, economic risks persist due to rising tariffs, AI-driven disruptions, and global economic uncertainty.

Economic Resilience Amid Challenges

Continued Expansion: Manufacturing and services, which account for 80% of India’s GDP, remain in the expansion zone despite external pressures.
Investor Confidence: The Sensex Q3FY25 earnings show strong net profit growth, reflecting India’s robust economic fundamentals.
Capital Outflows Offset: Economic expansion continues despite foreign capital outflows, signaling strong domestic demand.

Global and Technological Disruptions

Trade Protectionism: The S. has announced reciprocal tariffs (effective April 2), impacting India's manufacturing sector.
AI Disruptions in Services: Rapid adoption of AI is reshaping hiring and training in India’s IT sector, affecting traditional business models.
Geopolitical Risks: NASSCOM’s 2025 Strategic Review highlights global economic uncertainty as a major challenge for India’s services sector.

Sectoral Growth and Future Strategy

IT Sector Slowdown: Growth projections for India’s IT sector in FY25 range between 1% and 3.8%, significantly lower than its historic 16% CAGR.
Diversification Needed: Given India’s high dependence on the U.S. market, economic strategy must focus on trade diversification.
Policy Imperative: Policymakers must balance AI-driven efficiency with employment generation while addressing global trade disruptions.

Practice Question

Q. Global trade protectionism and rapid technological disruptions pose a dual challenge to India's economy. Discuss the impact of these factors on India’s manufacturing and services sectors and suggest policy measures to mitigate the risks.

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