India is set to maintain its position as the world’s fastest-growing major economy, with growth momentum expected to accelerate in 2025, according to a recent report from Franklin Templeton.
Despite a slowdown in 2024, where GDP growth hit a seven-quarter low of 5.4% in the second quarter, the report highlights various positive indicators suggesting a temporary dip. The Reserve Bank of India (RBI) forecasts a full-year growth of 6.6% for the fiscal year ending March 2025, down from 8.2% the previous year.
The report points to deferred government spending in the election year and heavy monsoon rains as primary factors behind the 2024 slowdown. However, government expenditure has been picking up since September, particularly in infrastructure and rural development, indicating a robust recovery ahead. This uptick in public spending is expected to drive private sector capital expenditure (capex) growth, with faster approvals for construction and engineering projects likely boosting corporate confidence.
Private consumption, a key driver of India’s economy, has shown stronger growth momentum in the latter half of the year. Consumer sentiment remains resilient, with optimism for the year ahead holding steady. The report anticipates that consumption growth will be further supported if inflation cools in 2025, with the Consumer Price Index (CPI) inflation rate expected to drop from 5.7% in late 2024 to 4% by mid-2025.
The Franklin Templeton report remains optimistic about India’s structural growth outlook, highlighting the potential for a substantial increase in the wealthy and middle-class populations, projected to expand by 400 million people by 2029. The nation’s digital economy and healthcare sector are also expected to benefit from this growth.
As government spending resumes, private sector capex rises, and domestic consumption remains resilient, India’s economy is anticipated to bounce back in 2025, setting the stage for an earnings recovery.
In summary, the outlook for India’s economic growth remains strong, positioning the country for continued robust expansion in the coming years.
