India’s real GDP growth is projected to decelerate to 5.8% in FY25, down from the earlier forecast of 6.1%, according to a recent report by Motilal Oswal Financial Services (MOFSL). The revised projection follows an unexpected slowdown in growth during the second quarter of FY25 to 5.4% year-on-year, significantly below the Reserve Bank of India’s (RBI) estimate of 6.7%.
MOFSL attributes the downward revision to weak October 2024 economic data, forecasting growth in the second half of FY25 at 5.0-5.5%. Despite the short-term slowdown, GDP growth forecasts for FY26 and FY27 remain unchanged at 6.2-6.3%.
The report highlights rising inflationary pressures, with headline retail inflation for FY25 revised upwards to 5.1% from the earlier estimate of 4.5%. A high inflation print is expected in the final quarter of FY25, diverging from RBI and market expectations. While weak growth might prompt a rate cut by the RBI in February 2025, the combination of sluggish growth and elevated inflation could complicate monetary policy decisions.
On the fiscal front, MOFSL anticipates lower-than-budgeted capital spending by the central government, citing higher revenue expenditures and subdued nominal GDP growth. The fiscal deficit for FY25 is expected to remain at 4.9% of GDP, with projections of a 4.5% deficit for FY26 signaling constrained total spending growth, potentially dampening overall economic momentum.
What Nomura says
Nomura too has projected a significant deceleration in India’s GDP growth to 5.8% in 2025 from 6.5% in 2024, citing weaker economic conditions. The brokerage also expects this slowdown to result in 100 basis points (bps) of policy rate cuts, doubling the consensus estimate of 50 bps.
The report highlights broader turbulence across Asia, with export downturns expected due to factors such as the continuation of Trump-era tariffs and a downswing in the global tech cycle, despite strong AI-driven chip demand. Domestic demand is expected to vary significantly across the region, leading to economic outperformance in Japan, Malaysia, and the Philippines, while India, South Korea, and Thailand could underperform.
Nomura also anticipates lower inflation in Asia compared to other regions, partly driven by intensified competition from China as it grapples with overcapacity issues. In terms of monetary policy, it forecasts sharper rate cuts in India, the Philippines, South Korea, and Australia in 2025, while Japan and Malaysia are expected to implement rate hikes.
