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India’s economic outlook for 2025: Navigating slowdown, structural challenges and global uncertainty

India’s economic outlook for 2025: Navigating slowdown, structural challenges and global uncertainty

The Reserve Bank of India (RBI) faces its own set of challenges. With inflationary pressures and a fragile rupee, there is little room for significant interest rate cuts. The RBI is caught in a delicate balancing act, where every policy decision is magnified, and the risks are immense.

Business Today Desk
Business Today Desk
  • Updated Jan 2, 2025 5:06 PM IST
India’s economic outlook for 2025: Navigating slowdown, structural challenges and global uncertaintyIn the aftermath of the pandemic, optimism lingers around the recovery of investments.

In the heart of India, economic corridors buzz with the energy of a nation striding toward its future. Yet, beneath the optimism lies a question that echoes in boardrooms and policymaker offices across the country: Is India’s economic slowdown in 2025 merely a temporary glitch, or does it signal deeper structural issues? 

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In a conversation with Rahul Kanwal, News Director - Aajtak & India Today, Neelkanth Mishra, Chief Economist at Axis Bank and chairperson of the UIDAI, Rathin Roy, former director of National Institute of Public Finance and policy and Soumya Kanti Ghosh, group chief economic adviser at SBI, discussed the possibility of India’s economic slowdown in 2025, impact from Trump’s tariff bombs, investment scenario, RBI stance on interest rates and global uncertainty 

Here are the salient points: 

The Slowdown: A Sign of Things to Come? 

The GDP growth has dipped to 5.4%, the lowest in seven quarters. For some, this is just a brief respite in an otherwise vibrant growth story. Yet, for others, this marks the beginning of a more ominous trend. As economists like Neelkanth Mishra and Rathin Roy delve into projections, they are divided.

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"Q2 GDP growth slowest in 7 quarters," said Neelkanth Mishra.

While one believes this is the result of global turmoil, lingering pandemic scars, and the geopolitical uncertainty that looms over India. The other is of the opinion that India’s structural weaknesses — such as insufficient capacity expansion and a sluggish manufacturing sector — are playing a more significant role. 

Investment Trends: Hope or Hype? 

In the aftermath of the pandemic, optimism lingers around the recovery of investments. The private sector is inching back with capacity expansions, signaling a hopeful sign. But not everyone shares the same enthusiasm. While some experts argue that investment recovery is slow but steady, others point to the hesitancy in large-scale capital expenditure, particularly among state governments. The real estate sector, once a driver of growth, remains dormant, adding to concerns about India’s economic future. 

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Amid this uncertainty, there’s a push toward emerging sectors like renewables, healthcare, and fintech. Yet, even these promising areas face delays. For them to meaningfully contribute to the economy, time is needed — a luxury that India’s leaders can ill afford. 

Interest Rates and RBI Policies: A Tightrope Walk 

The Reserve Bank of India (RBI) faces its own set of challenges. With inflationary pressures and a fragile rupee, there is little room for significant interest rate cuts. While some experts argue that a lower interest rate could stimulate growth, others warn that such moves could destabilize the currency and worsen fiscal deficits. The RBI is caught in a delicate balancing act, where every policy decision is magnified, and the risks are immense. 

The Trump Tariff Gambit: A Blessing in Disguise? 

As the political stage in the US heats up with the prospect of Donald Trump’s return, India’s business leaders wonder how the fallout from higher tariffs, especially those aimed at China, will affect them. Trump’s “America First” policies could push manufacturing out of China, creating an opening for India to emerge as a viable alternative under the “China plus one” strategy. The potential is there, but the shift won’t happen overnight. The nation’s manufacturing infrastructure still lags behind China’s, and India’s share in global exports remains marginal. 

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The Uneven Growth Story: A Tale of Two Indias 

As the country navigates through its economic maze, one stark reality emerges: the uneven growth across regions. While states like Maharashtra, Tamil Nadu and Gujarat are thriving, Uttar Pradesh and Bihar struggle. As the rural-urban divide and regional economic disparities widen, it leads to a future where growth may be lopsided, creating socio-economic tensions. 

External Factors and Global Uncertainty: The Ripple Effect 

The global economic landscape casts a long shadow on India’s future. With the US grappling with fiscal deficits and rising interest rates, emerging markets, including India, face an uphill battle. "There has been significant geopolitical uncertainty," said Soumya Kanti Ghosh.

Trade policies under the Trump administration add to the uncertainty, and India finds itself at the crossroads of global competition. 

Yet, within this turmoil, there is potential. India is poised to tap into foreign direct investment, especially in sectors like manufacturing and technology. The global economic shift could play into India's hands, but only if the nation can stabilize its internal growth trajectory. 

Moderate Growth Expectations: Stability or Stagnation? 

As 2025 looms, experts predict a moderate growth trajectory. While India’s prospects remain positive, there’s a realiSation that the nation’s growth is reliant on factors beyond its control — global economic stability, US policies, and the ever-volatile geopolitical landscape.

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"We'll perform moderately well, but I am not sure we get to 7%," said Rathin Roy.

The challenge lies in addressing the structural issues: job creation, investment in education and health, and stimulating the real estate sector. 

The Road Ahead: Navigating Uncertainty 

India’s economy in 2025 is a paradox. The country’s demographic advantage and untapped potential in sectors like renewables and technology position it to become a global powerhouse. However, if it doesn’t address its internal structural weaknesses and external vulnerabilities, the nation may find itself caught between the promises of its growth story and the realities of its economic limitations. 

As the journey continues, India’s policymakers and business leaders must walk a fine line, balancing internal priorities with the shifting dynamics of the global economy. The story of India’s economic future is still being written, with chapters of hope, challenge, and opportunity, but the outcome depends on how well the nation adapts to the ever-changing world around it. 

Catch the full conversation here

 

Published on: Jan 2, 2025 5:06 PM IST
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