India’s Central Bank Governor Optimistic About 2025 Growth Prospects
Mumbai: India’s newly appointed central bank governor, Sanjay Malhotra, expressed optimism about the country’s economic rebound in 2025, citing strong consumer and business confidence as key drivers. These were his first public remarks on India’s growth trajectory since assuming office earlier this month.
“Economic prospects are set to improve following the slowdown in the first half of 2024-2025,” Malhotra noted in the foreword to the Reserve Bank of India’s (RBI) bi-annual Financial Stability Report, released yesterday. “High consumer and business confidence, coupled with robust corporate balance sheets and profitability, pave the way for a brighter investment climate as we head into 2025.”
A Surprise Appointment
Malhotra, a seasoned bureaucrat, took the helm of the RBI on December 11, following a surprise appointment just two days earlier. At a press briefing marking his tenure’s start, he emphasized the importance of economic stability and growth, while refraining from providing explicit guidance on monetary policy.
Under the leadership of his predecessor, Shaktikanta Das, the RBI maintained a steady interest rate for nearly two years, despite mounting calls for easing. Analysts now anticipate a policy shift, with potential interest rate cuts as early as February 2025.
Growth Outlook and Challenges
India’s economy expanded at its slowest pace in two years last quarter, leading the RBI to revise its current fiscal year growth projection to 6.5%, down from over 8% in the previous year. However, the Financial Stability Report predicts a recovery in the latter half of the year, driven by domestic consumption, public investment, strong service exports, and favorable financial conditions.
Globally, Malhotra highlighted a positive outlook, supported by easing inflation and increased monetary policy flexibility. Yet, he acknowledged medium-term challenges, including geopolitical tensions, financial market volatility, climate risks, and rising debt levels.
Financial Stability in Focus
Malhotra underscored the RBI’s commitment to financial stability as a foundation for sustained growth. He pointed to a resilient financial sector characterized by strong earnings, low impaired assets, and robust capital buffers.
Stress tests included in the report show that capital adequacy in the banking sector is projected to remain stable, with a ratio of 16.5% by March 2026, ensuring no lender falls below the minimum regulatory requirement of 9%, even in adverse scenarios.
However, the report also warned of rising non-performing asset (NPA) ratios, which could climb to 3% by March 2026 from 2.6% in September 2024. Stretched asset valuations and increasing debt are primary concerns.
A softening economy poses risks to corporate profitability and household incomes, potentially impacting borrowers’ repayment capacity and challenging the banking sector.
Malhotra’s tenure begins amidst these complex dynamics, but his focus on stability and optimism for 2025 could steer India towards a more robust economic path.