India targets strong growth in 2025 amid inflation challenges and global headwinds
NEW DELHI : India will need to navigate geopolitical challenges, control domestic inflation, and encourage greater private sector investment as it strives to sustain its position as the world’s fastest-growing major economy in 2025, moving past the slowdown experienced in the September quarter.
Economists at the Reserve Bank of India (RBI) note that high-frequency indicators for the third quarter of 2024-25 signal an economic recovery, supported by robust festival-driven activity and a steady rise in rural demand.
Describing the recent dip as a “temporary blip,” Union Finance Minister Smt. Nirmala Sitharaman addressed the decline in economic growth to a seven-quarter low of 5.4% in the July-September period, following a strong expansion of 7-8% in previous quarters.
With the growth versus inflation debate leaving the finance ministry and RBI on different pages, all eyes will also be on possible interest rate cuts in February when the central bank’s monetary policy panel meets for the first time under the new Governor Mr. Sanjay Malhotra.
The panel meeting will come close on the heels of the 2025-26 Union Budget that will lay out the Modi 3.0 government’s economic and fiscal roadmap, especially in the context of global tensions and the upcoming Donald Trump presidency in the US.
All said, experts are of the opinion that India’s prospects are bright as macroeconomic fundamentals are strong. For 2024-25, the Reserve Bank of India (RBI) projects real GDP growth at 6.6%, rising to 6.9% in the first quarter of 2025-26. The June quarter of the next fiscal is expected to see a further expansion of 7.3%.
Experts suggest that the trajectory of the global economy will heavily depend on the policy measures adopted by Donald Trump, who is set to assume office as the U.S. President on January 20.
Additionally, the current volatility in securities and currency markets in India and other nations remains a significant concern.
“The outlook for the Indian economy is promising for the coming year, with growth likely to surpass 7%, building on the 6.6-6.8% anticipated for FY25,” said Madan Sabnavis, Chief Economist at Bank of Baroda.
The smoothening of inflation in the coming months will be the one factor driving consumption in the upward direction, which in turn will help to increase private investment in the consumer goods segment – which has been missing so far, he added.
Experts also said that an interest cut, which has been on hold since February 2023, will be a big booster for the economy as and when the RBI decides to take a call on it. The benchmark short-term lending rate has remained unchanged at 6.5 per cent since February 2023.
Icra Chief Economist Aditi Nayar noted that the economic outlook for the Indian economy appears quite bright from a domestic point of view, amidst rising uncertainty globally, stemming from geopolitics and conflicts, the pace of Central Bank easing and commodity prices, threats of tariffs etc.
The thrust, the ministry said, will be on improving the quality of public spending, while at the same time, strengthening the social security net for the poor and needy.
“This approach would help further strengthen the nation’s macro-economic fundamentals and ensure overall financial stability,” it said.
Finance Minister Sitharaman, while replying to a discussion in Parliament, said that the lower-than-expected GDP growth of 5.4 per cent in the second quarter was a “temporary blip” and the economy will see healthy growth in the coming quarters.
The latest RBI report, the Indian economy and financial system remain strong and stable underpinned by sound macroeconomic fundamentals, healthy balance sheets of banks and non-banks and low volatility in financial markets despite some qualms about global spillovers.
“Despite this recent deceleration, structural growth drivers remain intact. Real GDP growth is expected to recover in Q3 and Q4 of 2024-25, supported by a pick-up in domestic drivers, mainly public consumption and investment, strong service exports and easy financial conditions, the report added.
It is to be noted here that the Finance Ministry in its November Monthly Economic Review had raised concerns that the possibility that structural factors may also have contributed to the slowdown in H1 should not be ruled out.
RBI Governor Malhotra, in his foreword to the Financial Stability Report, said notwithstanding the uncertainties shrouding the global macro-financial ethos as it unfolds, prospects for the Indian economy are expected to improve after the slowdown in the pace of economic activity in the first half of 2024-25.
Consumer and business confidence for the year ahead remains strong, and the investment outlook is promising as corporations enter 2025 with solid balance sheets and high profitability,” said Malhotra, who assumed office as the 26th Governor earlier this December.
However, the International Monetary Fund (IMF) cautions that downside risks—such as rising geopolitical tensions, uncertainty surrounding trade and industrial policies following major global elections, and the potential tightening of financial conditions—could weigh on global output and deviate it from baseline projections.