What is in store for India's economy in 2025? Here's what experts say

India, the world’s fifth-largest economy, is on track to remain one of the fastest-growing economies over the next five years. If things go as planned, India could surpass Japan to claim the third spot on the global economic leaderboard.

Optimism for India remains healthy on the backdrop of strong GDP growth, control inflation, rising capex, improving fiscal and current account balance and favourable demographics.

In this article, we lay out the market’s expectations of some of the most crucial economic metrics

GDP growth: Expected to remain strong

Historically, India saw the highest absolute growth in nominal GDP in the last decade (2014-24)

What does the future hold?

India is expected to maintain this sprint in the global marathon. What is fuelling this growth?

• Rising household income
• Favourable government policies
• Highest-ever capex by private and public stakeholders
• Increasing consumption and income levels.

Market experts believe that India will deliver a sustained GDP growth of 6.5-6.8% over the next few years. While global growth is moderating, India is expected to maintain its pace of economic expansion.

India is one of the fastest-growing major economies

Source: Crisil; P = Projected

Inflation: Is the heat cooling off?

Consumer Price Index (CPI) inflation, which saw a surge to 6.2% in October 2024, is projected to moderate to 4.5% in FY25 and 4.0% in FY26.

Factors contributing to this moderation include:

• Favourable monsoon conditions
• High inflation base effects

On a slightly worrying note

• Urban demand and consumption has been slowing down recently. While optically it may help inflation, it would hamper overall growth.
• Geopolitical uncertainties and unusual weather events could challenge this outlook. Commodity prices could see upward pressure due to global tensions.

These will remain a key monitorable for investors in 2025

External debt - at a decadal low

India's external debt-to-GDP ratio has been at a decadal low since FY15, reflecting prudent fiscal policies on the back of strong tax collections. With forex reserves surging to record levels and India focusing on building import substitutes, external debt is expected to remain on a decreasing trend.

Fiscal deficit - tapering to continue

India’s fiscal deficit has been on a declining trajectory since FY22 on the back of strong prudent fiscal management. What’s working for India:

• Strong tax collection (as evident from record GST collection)
• Highest ever RBI dividend (almost 2x of estimated).
• Rising tax buoyancy (ratio of growth in tax revenues to GDP growth) is the factor.

Insights for Investors

Just like GDP growth, India is also expected to deliver one of the strongest earnings growth over the CY23-CY25 period.

While macroeconomic trends remain supportive, investors would be encouraged to note that company fundamentals are expected to remain supportive. Earnings growth has been modest in FY25, partly due to a strong base in FY24. That said, markets are expecting earnings growth to revive in FY26, which could provide some support to markets.

What does all this mean for investors?

India’s macroeconomic scenario reflects resilience and a strong growth trajectory despite global challenges. With India emerging as one of the fastest-growing economies in 2025, the outlook for India Inc also remains robust with better earnings growth expected to outpace global markets.