Facing mounting criticism for prioritizing inflation management over economic growth, newly appointed RBI Governor Sanjay Malhotra addressed key issues surrounding India’s economic landscape. Emphasizing stability and resilience, Malhotra expressed optimism for the Indian economy’s revival in 2025, underpinned by robust consumer and business confidence.
In his foreword to the latest Financial Stability Report, Malhotra reiterated the Reserve Bank of India’s (RBI) commitment to maintaining systemic stability. He emphasized that the institution remains focused on fostering financial and economic stability to sustain India’s aspirational growth trajectory.
“As we strive to preserve financial stability to support a higher growth path for the Indian economy, our focus remains steadfast on maintaining stability of financial institutions and, more broadly, systemic stability,” said Malhotra.
This statement aligns with RBI’s broader agenda of mitigating risks posed by global uncertainties while leveraging domestic strengths. India’s economic performance in the first half of FY2024-25 saw a marked slowdown, with GDP growth sliding to 5.4% in Q2—its lowest in seven quarters. For the first half, the overall GDP growth was recorded at 6%, prompting discussions on structural impediments within the economy. The Finance Ministry’s November Monthly Economic Review flagged concerns over possible long-term factors contributing to this deceleration.
Malhotra, however, remained optimistic about a recovery in the second half of the fiscal year, projecting accelerated growth as 2025 approaches. “Notwithstanding the uncertainties shrouding the global macro-financial ethos as it unfolds, prospects for the Indian economy are expected to improve after the slowdown in the pace of economic activity in the first half of 2024-25. Consumer and business confidence for the year ahead remain high and the investment scenario is brighter,” Malhotra stated.
The combination of moderating inflation and slower growth has fueled speculation that the RBI may ease monetary policy in the upcoming Monetary Policy Committee (MPC) meeting. Economists suggest a potential policy rate cut could provide much-needed relief to businesses and consumers, spurring economic activity.
Malhotra underscored the resilience of India’s financial sector, which remains well-positioned despite global economic headwinds. Highlighting robust earnings, low impaired assets, and strong capital buffers, he assured stakeholders that the banking system and Non-Banking Financial Companies (NBFCs) are equipped to withstand adverse scenarios.
The Financial Stability Report further revealed positive stress test outcomes, indicating that the financial sector’s capital levels exceed regulatory requirements, even in challenging conditions.
“We continue to secure and anchor public trust and confidence to support India’s aspirational goals. We remain committed to developing a modern financial system that is customer-centric, technologically leveraged, and financially inclusive,” Malhotra added.
Global Economy: Resilience Amid Challenges
Shifting focus to the global economic environment, Malhotra painted a mixed picture. While resilience has been observed despite significant political and economic uncertainties, geopolitical tensions, and fragmented international trade policies remain persistent challenges. On the brighter side, declining inflation and a strong labor market are expected to rejuvenate global purchasing power, potentially lifting global GDP growth after years of stagnation.
“As monetary policy gains headroom to further support economic activity, financial conditions can be expected to remain easy, contributing to an improvement in the trajectory of global GDP,” Malhotra remarked.
Despite the optimistic short-term projections, Malhotra warned of medium-term challenges that could derail growth: Geopolitical tensions and their potential to exacerbate economic instability. Climate-related events, which pose risks to infrastructure and economic activity. Rising debt levels, particularly in emerging economies. Technological disruptions in the form of cybersecurity threats and unregulated digital platforms. These factors necessitate robust policy responses to sustain economic momentum and mitigate vulnerabilities.
Under the leadership of Governor Sanjay Malhotra, the Reserve Bank of India is navigating through a complex economic landscape characterized by domestic challenges and global uncertainties. While the slowdown in early FY2024-25 raises concerns, high consumer confidence and strong financial systems provide a foundation for recovery. With strategic reforms and a cautious yet optimistic outlook, the Indian economy is poised to regain its growth trajectory in 2025.