2025: An ICE year

2025 started with optimism, with elections held in 42 countries (representing half of the world’s population) in 2024 and new governments taking charge in those geographies. The pendulum of political discourse globally has swung towards the right (not a judgement on whether it is ‘right’). If we look into the rear view mirror,we can summarise the year 2025 as an ICE year–one characterised by immigration resistance, climate change inaction and economic disruption.

Let me deal with the ‘I’ first (no pun intended). Most of the economies that are net recipient of immigrants classified migrants into ‘good’ and ‘not acceptable’ categories. Barriers to migration are being raised and incentives are simultaneously being provided to increase the population in many countries due to fears of local culture and race being diluted. While we cannot deny the right of nations to decide their policy on migration, the narrative is drowning out the significant empirical evidence of the benefits of migration to any economy. Turning to the ‘C’, the world has been facing several climate disasters with the frequency and fierceness of cyclones increasing, forest fires wiping out entire cities, and cloudbursts destroying lives and livelihoods. The urgent need for action has been recognised, but lack of consensus on who will bear the consequences and costs of the actions has once again led to no significant progress in the COP30discussions.

And finally, the ‘E’: Geopolitical conflicts and resistance to the shifting balance of economic power have led to economic disruptions of a scale and frequency never faced earlier. The fast pace of technological development from AI towards superintelligence is leading to uncertainty, and opinion is divided on whether the AI bubble is set to burst. The boom has revived interest in the periodic tables we struggled to memorise in high school. The rush for rare earths has made these elements one of the most important negotiation tools in global commerce.

So, what can we expect in 2026? We live in hope, and as an optimist, I believe we can expect a significant improvement in the geopolitical environment as the belligerence of self-reliance gives way to economic pragmatism. We can expect some of the major ongoing conflicts to be resolved. If these two factors play out, then we will have benign commodity prices that will provide succour to several smaller economies that have been reeling in the current context.

The Indian economy has been extremely resilient in the face of such ‘icy’ global headwinds. Growth forecasts of economists remain positive, although there are concerns around the sustainability of the demand. Government spending and the focus on infrastructure creation has continued to support the economy in this year too, with private capex still not picking up. Inflation has come down significantly given fewer climatic disruptions to crop output and a supporting statistical base effect. Despite the challenges on the export front, our exporters have again demonstrated Indian ingenuity by diversifying into new geographies and partially offset challenges. This has given headroom to the Monetary Policy Committee to cut the policy rates to reduce borrowing costs lower with the hope that this will provide a consumption and real estate boost, leading to higher capacity utilisation and private capex.

The government has also stepped in by providing income tax reliefs in the -scale year and then rationalising GST rates mid-year. The bullets for economic support are being ¬red on both the ¬scale and monetary fronts, and this has continued to support the economy. However, foreign institutional investors(FIIs) continue to be nervous about valuations in the Indian securities market and have continued to withdraw funds. The ¬financial markets, however, have been resilient, given the increasing depth of the domestic investor base. This has prevented the free falls that previously occurred when FIIs withdrew from the Indian markets. The rupee has come under pressure owing to dollar outflows, but it is likely to hold its ground and could also recover to an extent once the flows reverse and the trade environment improves in 2026. India will print strong growth in FY 2026 and also emerge as one of the highest growing economies in FY 2027. The change in the base year of GDP computations and refresh of the consumer price inflation basket will provide us with a better picture of the inflation and growth numbers for FY 2027 and we look forward to these resets.

The world will usher in the new year with hope. I hope that there will be less noise on immigration as business realities dawn on nations, that the number of climate-induced disasters that impact the poorest populations will be lower, and that the global as well as Indian economy will print stronger in 2026. While there is a forecast of a harsher winter this season, let’s hope the ICE winds are not that strong.