Amid government criticism over the Reserve Bank of India’s (RBI) focus on controlling inflation rather than economic growth, new RBI Governor Sanjay Malhotra said on December 30 that the Indian economy is expected to improve in 2025, driven by strong growth. consumer and business confidence.
In the foreword to the financial stability report, Malhotra highlighted the RBI’s commitment to maintaining financial stability, which he considers crucial to support sustainable growth of the Indian economy. “As we work to ensure the stability of financial institutions and broader systemic stability, our focus remains on fostering a higher growth trajectory,” he said.
Malhotra also noted that despite global uncertainties, the Indian economy is expected to gain momentum in the second half of the current financial year. “Despite persistent global macro-financial challenges, the Indian economy is expected to regain momentum after the slowdown in the first half of 2024-25,” it said. “Consumer and business confidence remains high, and the investment climate looks promising, as companies enter 2025 with strong balance sheets and healthy profits. »
The Finance Ministry, in its monthly economic review in November, had highlighted potential structural factors contributing to the slowdown in the first half of 2024-25. India’s GDP growth fell to a seven-quarter low of 5.4% for the second quarter ending September 2024, bringing first-half GDP growth to 6%.
The slowdown, coupled with subdued inflation, is raising expectations that the RBI may cut its policy rate at the next Monetary Policy Committee meeting.
Malhotra further highlighted that financial sector regulators in India are pursuing reforms and strengthening supervision. He highlighted the strength of the financial system, supported by strong profits, low impaired assets and strong capital reserves. The stress test results indicate that the banking sector and non-banking financial companies (NBFCs) will maintain capital levels well above regulatory minimums, even in stressed scenarios.
“We continue to strengthen and ensure public trust, supporting India’s ambitious goals. We are committed to developing a modern financial system that is customer-centric, technologically advanced and financially inclusive,” he said .
Regarding the global economy, Malhotra recognized resilience in the face of significant challenges, such as political and economic uncertainty, ongoing conflicts and fragmentation of international trade. He noted, however, that the global outlook is improving, with inflation expected to continue to fall, supporting the recovery in purchasing power. As monetary policy gains more room to support economic activity, favorable financial conditions are expected to boost global GDP growth after a prolonged period of weak growth.
Although the outlook appears promising, Malhotra warned that medium-term risks persist, including a potential escalation of geopolitical conflicts, financial market instability, extreme weather events and rising debt levels. Additional uncertainties arise from high asset valuations, vulnerabilities of less regulated non-bank financial intermediaries, and challenges posed by emerging technologies.
