MUMBAI: India’s economy is poised for a rebound in 2025, fueled by strong consumer and business confidence, according to the Reserve Bank of India (RBI) Governor Sanjay Malhotra. These remarks, made in his first public address on economic prospects since assuming office earlier this month, signal cautious optimism for the nation’s financial trajectory.
“After a slowdown in economic activity during the first half of 2024-2025, we anticipate a turnaround,” Malhotra wrote in the foreword of the RBI’s bi-annual Financial Stability Report, released yesterday. “Consumer and business confidence for the year ahead remain high, and a brighter investment landscape is emerging as corporations enter 2025 with robust balance sheets and strong profitability,” he added.
A Surprise Appointment with Clear Goals
Malhotra, a seasoned bureaucrat, was an unexpected choice for the role, stepping into office on December 11 for a three-year term. At a press briefing marking his appointment, he underscored the importance of economic stability and growth, while refraining from offering specific guidance on monetary policy.
Under the leadership of former governor Shaktikanta Das, the RBI maintained interest rates at steady levels for nearly two years, despite mounting calls for easing. Economists now predict a potential shift in direction under Malhotra, with possible interest rate cuts as early as February.
Challenges and Recovery Outlook
The Indian economy recently recorded its weakest growth in two years, prompting the RBI to revise its growth projection for the current fiscal year to 6.5%, down from over 8% in the previous year. However, the central bank remains optimistic about a recovery in the latter half of the financial year, driven by increased public consumption, robust service exports, and favorable financial conditions.
Globally, Malhotra noted, inflationary pressures are easing, creating room for supportive monetary policies. However, he warned that medium-term challenges persist, including geopolitical tensions, financial market volatility, climate change impacts, and rising debt levels.
Focus on Financial Stability
Malhotra emphasized that the RBI will prioritize financial stability to underpin India’s growth ambitions. “The financial sector remains resilient, with strong earnings, minimal impaired assets, and robust capital buffers,” he stated.
The Financial Stability Report highlighted the banking system’s capital adequacy ratio, projected to remain steady at 16.5% by March 2026, well above the regulatory requirement of 9%, even under adverse conditions.
However, risks loom on the horizon. The RBI expects gross non-performing assets (NPA) in the banking sector to rise to 3% by March 2026, up from 2.6% in September 2024. Stretched asset valuations and growing indebtedness could exacerbate challenges for banks as a weaker economy impacts corporate profits and household incomes.
As Malhotra steers the central bank into a pivotal year, his dual focus on stability and growth reflects India’s broader economic aspirations, balancing near-term recovery with long-term resilience.
