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The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, expressed optimism about the Indian economy’s prospects, projecting improvement in 2025 despite global uncertainties. In his foreword to the Financial Stability Report released on Monday, Malhotra highlighted strong consumer and business confidence as driving forces for economic recovery.
Economic Outlook and Current Challenges
Malhotra noted that the Indian economy, which faced a slowdown in the first half of the current financial year, is expected to gain momentum in the latter half. “Prospects for the Indian economy are expected to improve after the slowdown in the pace of economic activity in the first half of 2024-25,” he said.
India’s GDP growth fell to a seven-quarter low of 5.4% in the second quarter ending September 2024, with a 6% growth rate recorded for the first half. The Finance Ministry, in its November Monthly Economic Review, attributed the slowdown partially to structural factors, urging a focus on policy measures to revive growth.
Focus on Stability and Reforms
Malhotra emphasized the RBI’s commitment to maintaining financial stability and systemic robustness while addressing criticisms about prioritizing inflation control over growth. “Our focus remains steadfast on maintaining the stability of financial institutions and, more broadly, systemic stability,” he said.
The Financial Stability Report also underscores the soundness of India’s financial system, citing robust earnings, low impaired assets, and strong capital buffers. Stress tests indicate that the banking system and Non-Banking Financial Companies (NBFCs) sector are well-capitalized and resilient even under adverse scenarios.
Global Economic Context
On the global front, Malhotra acknowledged the resilience of economies despite challenges such as geopolitical tensions, trade fragmentation, and policy uncertainties. He highlighted declining global inflation as a positive sign, potentially boosting purchasing power and facilitating economic recovery.
“Financial conditions can be expected to remain easy and contribute to an improvement in the trajectory of global GDP from a prolonged phase of low growth,” he remarked. However, the medium-term outlook remains fraught with risks, including climate events, geopolitical conflicts, and financial market volatility.
Future Policy Directions
The slowdown in growth and moderation in inflation have fueled speculation about a potential rate cut in the RBI’s upcoming Monetary Policy Committee meeting. Malhotra reaffirmed the RBI’s commitment to fostering a modern, inclusive, and customer-centric financial system while navigating the evolving economic landscape.
Conclusion
As India moves toward 2025, the combination of strong financial fundamentals, high consumer confidence, and proactive regulatory measures offers hope for a more robust economic performance. However, addressing structural challenges and mitigating global risks will remain critical to sustaining long-term growth.
Sources By Agencies
