Synopsis
According to a Moody's report, India's GDP growth is projected to exceed 6.5% in 2025-26, buoyed by government spending and tax cuts. This follows a brief slowdown in mid-2024, with a stable banking outlook amidst modest interest rate cuts.Key Takeaways
- India's GDP growth expected to exceed 6.5% in 2025-26.
- Growth driven by government capital expenditure and tax cuts.
- Inflation projected to decline to 4.5%.
- Continued RBI rate cuts anticipated.
- Stable banking sector forecast with minor stress in unsecured loans.
New Delhi, March 13 (NationPress) India's GDP growth is projected to surpass 6.5 per cent in the fiscal year 2025-26, driven by increased government capital expenditure and a rise in consumer spending due to income tax reductions and the RBI's interest rate cuts, as detailed in a report by Moody’s.
The report indicates that after a brief economic slowdown in mid-2024, India's growth trajectory is expected to quicken, positioning it among the fastest-growing economies globally.
According to Moody's Ratings, government capital investments, tax reductions for middle-income groups, and monetary easing are projected to drive India's real GDP growth beyond 6.5 per cent for the fiscal year 2025-26, an increase from 6.3 per cent in 2024-25.
Moody's anticipates that India's average inflation rate will decrease to 4.5 per cent in 2025-26, down from 4.8 per cent the previous year. This decrease is expected to create sufficient space for a relaxed monetary policy, fostering growth through lower interest rates and increased liquidity for consumer and business loans.
RBI Governor Sanjay Malhotra recently announced a 25 basis points rate cut, bringing it down to 6.25 per cent following last month's monetary policy review.
Moody's also predicts that future rate cuts will be cautious due to global uncertainties regarding US trade policies and the resulting market and exchange rate fluctuations, notably the strengthening of the US dollar against emerging market currencies in late 2024 and early 2025.
The report outlines a stable outlook for the banking sector, though it notes potential stress in unsecured retail loans, microfinance loans, and loans to small businesses. Nevertheless, bank profitability is expected to remain adequate, with only marginal declines in net interest margins (NIMs) anticipated amidst modest rate reductions.
“We estimate system-wide loan growth will decelerate to 11-13 per cent in fiscal 2025-26, down from an average of 17 per cent for the period from March 2022 to March 2024, as banks aim to align loan growth with deposit expansion,” the Moody's report further explained.
