Myth no more? India lowers economic growth forecast to the lowest level since 2021

On Tuesday, January 7, the Indian government lowered its economic growth forecast for the current fiscal year, expecting GDP to grow by 6.4%, the lowest level since the pandemic. However, economists stated that this expectation may still be overly optimistic.

Specifically, this figure represents a significant decline from the previous fiscal year's 8.2%, aligning with analysts' expectations. Analysts believe that this adjustment confirms that India's previously leading economic growth is slowing down, which also poses "headwinds" to Prime Minister Modi's goal of "moving towards a developed economy."

Standard Chartered economist Anubhuti Sahay even suggested that achieving the revised expectation may be a daunting task for India:

“ To achieve the 6.4% GDP growth target means India needs to achieve a growth of 6.8% in the second half of the 2025 fiscal year, which is a bit too optimistic.”

Goldman Sachs and Nomura's forecasts are similarly more pessimistic than the Indian government's, predicting the country's economic growth rate to be only 6%. Analysts believe that geopolitical tensions and the tariff policies proposed by U.S. President-elect Trump will suppress global trade and investment, and India's economic growth may continue to be under pressure in the coming months.

Due to slow wage growth and rising inflation rates, consumers have reduced spending, leading to profit declines for some major retailers in India, while household and corporate consumption and investment account for about 60% of India's GDP, and their weakness directly impacts overall economic growth.

Moreover, influenced by weeks of ongoing election activities, the Indian government's budget spending this year has also fallen short of expectations, further suppressing economic growth.

Against this backdrop, analysts believe that the newly appointed central bank governor Sanjay Malhotra will face greater pressure, as he must begin to cut interest rates to reverse the restrictive stance of his predecessor Das. India's first monetary policy meeting of the year will be held on February 7, after Das has kept interest rates unchanged for nearly two years.

It is worth noting that in November last year, the Reserve Bank of India had just lowered its growth forecast for the 2024-25 fiscal year from 7.2% to 6.6%. According to economist Madhavi Arora cited by Bloomberg, the government's growth expectation is lower than the Reserve Bank of India's forecast of 6.6%, which may force the Indian central bank to cut interest rates at the next policy meeting, even amid a still challenging global situation.

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