India will have to make a major change in its fiscal and monetary policies for the GDP hike at the rate of 6.4 percent in 2025. The main reason for this is that the rupee is weakening, foreign investment is decreasing and inflation continues to fluctuate. Moody’s Analytics said in a report on Wednesday.
Moody’s Analytics stated that the Union Budget of 2025-26 expected to promote domestic demand and investment, while the fiscal deficit for the next financial year would be a target to keep GDP less than 4.5 percent. The fiscal deficit in 2023-24 was at 5.6 percent level of GDP, which is just estimated to be reduced to 4.9 percent in the ongoing financial year.
Aditi Raman, Associate Economist of Moody’s Analytics, said, “India is following a difficult path in 2025. Weak rupee, decreasing foreign investment and unstable inflation are the biggest economic risks. If India has to achieve a 6.4 percent increase, then there will be a need to change the fiscal and monetary policy in the first six months of 2025. ”
Moody’s said that while India was one of the fastest growing economies in Asia in 2024, GDP growth in the first three quarters of 2024 slowed down. GDP growth is expected to increase in the October-December quarter, leading to a total increase of 6.8 percent in 2024. It was 7.8 percent in 2023.
Raman said, “Potential American import duty will create a challenging environment for India’s exports, which will affect the increase. However, this will not be so effective, as India’s economy is relatively closed. In our baseline, the growth rate of GDP in 2025 will slow down to 6.4 percent. ”
Moody’s Analytics said the rupee has become very weak since the softening of the US Federal Reserve. In the US, Donald Trump became president and further pressure on the rupee, as investors started investing in US dollars by selling Indian properties.
Despite RBI’s intervention, the impact less
Despite the intervention of the Reserve Bank of India, the rupee weakened in early 2025 and reached a record level of Rs 86.6 against the US dollar in mid -January.
Raman said, “However, the rupee has not become as weaker than the currency of other developing countries. But we feel that this will be more weak in long time because the demand of the growing middle class will increase the country’s dependence on imports. It will be difficult for the central bank to control this pressure on the currency. ” Moody’s Analytics estimates that inflation will decrease from 4.8 percent to 4.7 percent in 2025 in 2024.
He said, “Food inflation should be reduced, but input costs are expected to increase due to falling money, which can increase imported inflation. The decline in inflation can also delay late rate cuts. ”
Raman further said, “India is facing a challenging situation in 2025; The growth is slowing down, the rupee is likely to weaken against the US dollar, and the major inflation rate is far from the central bank’s target range. ”