India's Economic Growth Set to Recover to 7% by 2025-26: Analysis
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New Delhi, Dec 11 (NationPress) India's economic growth is anticipated to bounce back to 7 percent in 2025-26, even in the face of global uncertainties. This projection is primarily attributed to domestic policies, as highlighted in a research report from Axis Bank released on Wednesday.
The report suggests that a cyclical recovery will redirect India towards a more robust growth trajectory.
According to the report, the slowdown experienced in the first half of 2024-25 for the Indian economy is seen as cyclical, stemming from unintended fiscal and monetary tightening. The latter is driven by a focus on macroeconomic stability risks, which have adversely affected credit growth. However, with fiscal spending on the rise and a reduction in the Cash Reserve Ratio (CRR) by the RBI, the growth constraints caused by money shortages are expected to ease.
The report asserts that India's political stability will enhance the growth rate, notwithstanding the volatile global economic landscape.
It maintains that the potential growth rate stands at 7 percent, bolstered by a resurgence in capital formation linked to the revival of the capital expenditure (capex) cycle. The forecast indicates an above-consensus growth rate of 7 percent for FY26, driven by supportive fiscal spending in FY25 and additional macro-prudential measures aimed at re-boosting credit growth.
Regarding the global context, the report notes: “While current global growth forecasts indicate stability, possible policy changes in the US beginning January 20 create uncertainty. Heightened volatility in global trade and financial markets is anticipated, alongside expectations of increased global interest rates and fluctuations in USD-INR; however, the strength of the USD is not expected to persist throughout the year,” the report highlights.
Projected global growth for CY25 is anticipated to remain the same as CY24 at 3.2 percent, which is 30-40 basis points below the pre-Covid levels. With a new US President poised to implement changes affecting trade, taxes, regulations, immigration, and energy, uncertainty surrounding potential policy shifts post-January 20 persists.
Trade tariffs may have limited effectiveness when considered in isolation (as fiscal deficits, foreign exchange, and industrial policy are also significant), yet they can cause disruptions, particularly since nearly all trade growth since 2016 has been linked to US imports and China-driven exports. In India, the lack of significant state elections provides an opportunity to advance reforms, according to the report.
Neutral interest rates have increased by one percentage point across developed economies and are expected to remain significantly above levels observed in the previous decade, potentially accompanied by further US tax cuts and an increase in the supply of long-term securities.
