The post-election fiscal tightening in 2024, coupled with persistent inflationary pressures, has cast a shadow over India’s economy.
In the third quarter of 2024, GDP growth slowed to 5.6% year-on-year, down from 6.9% in the previous quarter, as subdued private consumption and investment took their toll. However, this lull is unlikely to last. With resilient market fundamentals, we expect the slowdown to fade. Our 2026 growth forecast remains unchanged at 6.6%.
In response, the government has introduced fiscal measures to stimulate demand. An income tax reform will exempt an additional 10 million middle-income households, enhancing disposable income and boosting consumption – an essential driver of India’s economy, accounting for 60% GDP. At the same time, an increase in infrastructure spending and interest-free loans to states suggests a more balanced fiscal stance.
On the monetary front, the Reserve Bank of India (RBI) has stepped in, initiating a 25-basis-point rate cut in February. Further rate cuts remain a possibility to support the economy, as inflation eased to 4.31% and food prices stabilised in January.
Despite the recent volatility on India’s stock market, the country’s fundamentals remain intact. As one of the world’s fastest-growing economies, India is on track to surpass the eurozone as the third-largest contributor to global GDP in 2025. With fiscal and monetary policies working in tandem, India is set to maintain its growth trajectory, supporting a constructive outlook for 2025 and beyond.
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