A Closer Look
Goldman Sachs has projected that India's GDP growth will moderate to 6.3% year-on-year in 2025. This slowdown is attributed to ongoing fiscal consolidation and tighter credit growth due to macro-prudential measures implemented by the Reserve Bank of India (RBI).
Despite this projected slowdown, India is expected to remain relatively insulated from global economic shocks, including a potential trade war between the United States and China. This resilience stems from India's strong long-term structural growth prospects.
The RBI's monetary policy is anticipated to remain cautious in 2025, balancing the need for easier monetary conditions to support growth with the challenges posed by a strong US dollar and global trade uncertainties. This cautious approach may limit the rate-cut cycle, with Goldman Sachs projecting a 25-basis-point repo rate cut in February 2025 followed by another 25-basis-point cut in April.
Despite calls for more accommodative monetary conditions, the RBI is likely to prioritize maintaining a balanced approach, keeping monetary policy close to the nominal neutral rate of 6%. This cautious approach aims to ensure stability amidst global trade tensions and external shocks.
Headline inflation is projected to average 4.2% year-on-year in 2025, down from over 7% in 2024. This decline is attributed to factors such as better rainfall, improved summer crop sowing, and a potential 2.5 percentage point decrease in food inflation.
Overall, India's economy is expected to maintain stability in 2025, showcasing its resilience in the face of external challenges. While the projected growth slowdown may necessitate adjustments in monetary policy, India's long-term structural growth prospects remain robust, positioning the country for continued economic progress.