IMF’s Global Financial Stability Report, 2025 paints a cautioning tableau of mounting systemic vulnerabilities in a global economy buffeted by tariff-induced distortions, financial market turbulence, and the deepening entanglement between banks and Non Banking Financial Institutions (NBFIs). All these dynamics bear acute relevance for India. The Fund’s Growth-at-Risk model now projects a disconcerting possibility of global growth slipping below 0.4%, a scenario that could trigger capital outflows and investor apprehension, unsettling even resilient economies like India, which is otherwise slated to grow at 6.2%. Alarming exposures, such as US banks’ NBFI-linked assets surpassing the threshold of regulatory capital, portend similar contagion risks for India’s own NBFC-heavy financial ecosystem. Also, surging domestic equity valuations and the government’s ambitious ₹14.82 lakh crore borrowing plan heighten India’s sensitivity to global bond sell-offs and exchange rate volatility. Compounding these risks is the IMF’s spotlight on the growing correlation between crypto markets and traditional assets, stressing the urgent need for India to establish a coherent digital asset regulatory architecture.
The focus then shifts on the destabilising potential of geopolitical shocks, be they military, trade-related, or diplomatic, on asset prices and sovereign risk premiums. For India, whose fiscal space remains constrained by an 82% debt-to-GDP ratio and a 5.1% fiscal deficit, such shocks amplify vulnerabilities via rising borrowing costs and currency depreciation, especially given its dependence on imported energy and critical technologies. Indian firms with cross-border exposure are particularly susceptible to equity shocks during global crises, while foreign investor skittishness could trigger liquidity stress and redemption pressures across domestic financial markets. In this context, the IMF’s call for robust macroprudential safeguards, enhanced financial supervision, and deeper market development resonates resoundingly. For India, the moment demands more than reactive stability, it necessitates preemptive resilience rooted in fiscal reform, strategic hedging, and geopolitical dexterity, positioning the country not merely as a passive participant but as an anchor of stability in an increasingly fractured global order.
