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Moody's Analytics says India to slowdown in 2025

Moody's Analytics calls for fiscal, monetary policy changes to meet 6.4% GDP growth target in 2025 amid economic challenges

Mumbai: A change in fiscal and monetary policy is needed if India has to achieve a 6.4 per cent GDP growth in 2025 amid a weak rupee, declining foreign investment and volatile inflation, Moody's Analytics said on Wednesday.

Moody’s Analytics, a unit of Moody’s Corporation, in its report said, “Overall, India is facing a bumpy road in 2025. A weakening rupee, declining foreign investment, and volatile inflation are the areas of greatest economic risk. Changes in fiscal and monetary policy, likely in the first half of the year, are needed if India is to achieve 6.4 per cent growth.”

The Analytics wing of Moody’s expects the 2025-26 Union Budget to support domestic demand, particularly investment, while aiming for a fiscal deficit of less than 4.5 per cent of GDP for the next fiscal. In the year to March 2024, the fiscal deficit was 5.6 per cent of GDP.

While India had one of the fastest-growing economies in Asia in 2024, GDP growth waned over the first three quarters. In the September quarter, growth slowed to 5.4 per cent year on year from 6.7 per cent in the previous quarter. This was the weakest result since the last quarter of 2022 and far below market expectations. The end of last year went better. GDP growth likely picked up in the December quarter, resulting in an overall expansion of 6.8 per cent in 2024. That compares with 7.8 per cent in 2023.

“The slowdown versus 2023 sets a cautious tone for 2025. With interest rates staying higher for longer, domestic demand will moderate. Potential U.S. tariffs on Indian imports will make for a challenging export environment that hampers growth. However, that won't be too influential, given India's relatively closed economy. Our baseline has GDP growth slowing to 6.4 per cent in 2025.”

As opposed to the popular view of a rate cut in February, Moody’s Analytics expects the central bank to cut rates by 25 basis points in April.

Moody's Analytics expects inflation to cool to 4.7 per cent in 2025 from 4.8 per cent in 2024. Food inflation should ease, but the tumbling rupee will likely add to input costs, driving up imported inflation.

The rupee has weakened significantly since the start of the U.S. Federal Reserve's easing cycle in September. Donald Trump's win in the U.S. presidential race only put more pressure on the rupee as investors sold Indian assets, jumping on a greenback rally. Despite interventions by the Reserve Bank of India, the rupee lost more ground in the opening weeks of 2025, hitting a record low of Rs 86.6 to the U.S. dollar in mid-January.

( Source : Deccan Chronicle )
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