Amid government criticism of the Reserve Bank of India (RBI)'s focus on inflation control over economic growth, newly appointed RBI Governor Sanjay Malhotra said on December 30 that the Indian economy is expected to lead strongly in 2025. Consumer and business confidence.
In the foreword to the Financial Stability Report, Malhotra emphasized the RBI's commitment to maintaining financial stability, which is considered critical to support sustainable growth for the Indian economy. “Our goal is focused on fostering a higher growth trajectory, while we work to ensure the stability of financial institutions and broader systemic stability,” he said.
Despite global uncertainties, India's economy is likely to pick up pace in the latter half of the current fiscal, Malhotra noted. “Despite the current global macroeconomic challenges, the Indian economy is expected to regain its momentum after the slowdown in the first half of 2024-25,” he said. “Consumer and business confidence remain high, and the investment climate looks good as companies enter 2025 with strong balance sheets and healthy profits.”
The finance ministry, in its November monthly economic review, pointed to structural factors that could contribute to the slowdown in the first half of 2024-25. India's GDP growth for the second quarter ending September 2024 fell to a seven-quarter low of 5.4%, bringing GDP growth to 6% in the first half.
The slowdown along with moderating inflation raises expectations that the RBI may cut its policy rate in the upcoming Monetary Policy Committee meeting.
Malhotra further emphasized that India's financial sector regulators are moving forward with reforms and enhanced oversight. He highlighted the strength of the financial system, bolstered by solid earnings, low impaired assets and strong capital buffers. The results of the stress tests show that both the banking sector and non-banking financial companies (NBFCs) will maintain capital levels above the regulatory minimum even under stress conditions.
“We will continue to build and secure public trust while supporting India's ambitious goals. We are committed to developing a modern financial system that is consumer-centric, technologically advanced and financially inclusive,” he said.
Regarding the global economy, Malhotra acknowledged resilience in the face of significant challenges such as political and economic policy uncertainty, ongoing conflicts and fragmentation of international trade. However, he noted that global prospects are brightening and inflation is expected to continue its decline, supporting a recovery in purchasing power. As fiscal policy becomes more accommodative to support economic activity, favorable fiscal conditions are expected to boost global GDP growth after a prolonged period of low growth.
While the outlook looks promising, Malhotra warned of medium-term risks, including geopolitical conflicts, financial market volatility, extreme climate events and rising debt levels. Additional uncertainties arise from stretched asset valuations, risks from less regulated non-bank financial intermediaries and challenges posed by emerging technologies.