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Risks to economy escalating in 2025, says SBICAPS
- Amid rising currency volatility and the diversification of global supply chains, emerging risk from rising household debt, fluctuating FII flows, and global financial tightening threaten to amplify economic fragility, SBICAPS says
New Delhi: The economic outlook for calendar year 2025 remains cautious, with many of the risks from the last year expected to escalate, leading to heightened uncertainty and volatility, according to SBICAPS.
Fresh structural shifts, such as rising currency volatility and the diversification of global supply chains, are unfolding against a backdrop of ongoing trade wars, geopolitical upheavals, and political transitions, while emerging risks—rising household debt, fluctuating FII flows, and global financial tightening—threaten to amplify economic fragility, SBICAPS said in its monthly EcoCapsule Report for January released on Tuesday.
"For India, navigating this storm will demand a nimble and cautious strategy," it said. "Balancing the promise of growth with the perils of disruption, only adaptability and resilience can transform this moment of flux into an opportunity to shape the economic destiny."
Slipping GDP growth
Real GDP growth slipped to 5.4% in the September quarter, the lowest in nearly two years, dragged down by a slowdown in manufacturing, urban consumption, and weak corporate earnings.
Growth during Q1 FY25 stood at 6.7%. In comparison, the previous fiscal FY24 saw India’s real GDP grow at 8.2%.
Experts have attributed this sluggishness to reduced government spending and weakening urban consumption trends.
"After a sluggish H1FY25, growth is expected to rebound in H2, driven by government spending and festive momentum, lifting H2 GDP higher than H1. However, challenges loom large—declining government capex and selective private investments remain hurdles," SBICAPs said in the report.
"Rising household debt, coupled with global uncertainty, threatens to gradually slow growth momentum, introducing downside risks to our estimates. With corporate leverage sitting at a 6-year low, sustained growth in FY26 will depend on the private sector stepping up its capex game to drive the next wave of expansion," it added.
Read more: India’s central bank should lead the policy easing cycle that its economy needs
To be sure, the Centre has pegged India's GDP growth at 6.4% for FY25. However, the government’s first advance estimate for GDP growth for the ongoing fiscal, released on Tuesday, is lower than the central bank’s revised estimate of 6.6%.
In comparison, the Economic Survey released in July 2024, ahead of the annual budget, projected a growth of 6.5% to 7% for FY25.
Inflation-growth dilemma
"While grappling with the inflation-growth dilemma, currency movements are another pressing concern for the Reserve Bank of India (RBI). The INR repeatedly touched record lows, with its relative outperformance against other struggling EM currencies offering little consolation. The RBI’s steady interventions in the forex market drawing down reserves by about USD 65bn from their Sep’24 peak controlled the depreciation," SBICAPS said in the report.
"The early months of FY25 saw tame inflation, but the RBI wisely avoided complacency, keeping policy rates high. Vindicated in its resolve, and owing to softer H1 growth, it shifted its stance, easing liquidity. A rate cut is now expected in Feb’25, with rupee volatility as a key risk," the report added.
To be sure, retail inflation based on the consumer price index (CPI) fell to a three-month low of 5.48% in November from the 14-month high of 6.21% in October, according to statistics ministry data.
The decline in inflation comes at a time when senior government functionaries including finance minister Nirmala Sitharaman and commerce minister Piyush Goyal have called for lower interest rates.
At times of high inflation, central banks raise interest rates to make borrowing costlier, which reduces demand and ultimately brings down consumer spending and inflation.
The RBI aims to keep inflation within a target band of 2-6%.
In December, the RBI's Monetary Policy Committee (MPC) kept the key repo rate unchanged at 6.5% for the eleventh consecutive time, keeping interest rates unchanged for 22 months.
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Business NewsEconomyRisks to economy escalating in 2025, says SBICAPS
First Published:7 Jan 2025, 08:37 PM IST
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