India’s Economic Growth Projections Moderated, Rate Cuts on the Horizon

Image Source: The Economic Times

India's economic prospects have been downgraded, with economists now predicting weaker growth and a more forceful monetary easing cycle from the Reserve Bank of India (RBI), based on the latest Reuters poll. The downgrades come against the backdrop of global trade woes and recurring issues of private investment and jobs.

Growth Outlook Moderated

India's GDP growth is projected at 6.3% in 2025-26 and 6.5% in 2026-27, lower than the previous March poll estimate of 6.5% for both years.
The downward revision is due to the adverse effect of recent U.S. tariffs on business sentiment, adding to prevailing concerns about soft private investment.
The revised estimates are barely higher than the International Monetary Fund's (IMF) most recent estimate of 6.2% for 2025-26, and are well within the range of the government itself of 6.3%-6.8%.
Analysts caution that top-line numbers hide underlying concerns, such as a lack of creation of high-quality employment opportunities for India's vast youth workforce and freezing of private consumption spending.

RBI Rate Cut Expectations Intensify

The RBI is now likely to reduce its repo rate to 5.50% by Q3 2025 end, a steeper easing compared to 5.75% projected in March.
The central bank is also likely to reduce rates for a third straight meeting in June and the rate stands at 5.75%.
Soothing inflation has given the RBI greater scope to sustain growth, with consumer inflation averaging close to 4% this year—below the 4% medium-term target for two months now.
Further cuts in interest rates are expected by analysts, particularly as global trade tensions and U.S. tariffs weigh on growth downside risks.

Risks and Policy Challenges

Global uncertainties from geopolitical tensions and disruptions in trade continue to hang over India's economic prospects.
The government's rising infrastructure spending hasn't been supplemented by private investment, constraining the growth potential of the economy.
Food inflation continues to be a worry point, with threats from poor weather and global commodity price shocks.

Sources: Reuters, Economic Times, Deccan Herald

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