India Needs Fiscal & Monetary Policy Changes for 6.4% GDP Growth in 2025: Moody's

New Delhi, Jan 29 (PTI) India needs to change its fiscal and monetary policy to achieve a 6.4 per cent GDP growth in 2025 amid a weak rupee, declining foreign investment and volatile inflation, Moody's Analytics said on Wednesday.

Moody's Analytics said it expects the 2025-26 Union Budget to support domestic demand, particularly investment while aiming for a fiscal deficit of less than 4.5 per cent of GDP for the next fiscal.

In 2023-24, the fiscal deficit was 5.6 per cent of GDP, which is estimated to come down to 4.9 per cent in the current fiscal.

"India is facing a bumpy road in 2025. A weakening rupee, declining foreign investment, and volatile inflation are the areas of greatest economic risk. Changes in fiscal and monetary policy, likely in the first half of the year, is needed if India is to achieve 6.4 per cent growth," Moody's Analytics Associate Economist Aditi Raman said.

Moody's said that while India had one of the fastest-growing economies in Asia in 2024, GDP growth waned over the first three quarters.

GDP growth likely picked up in the December quarter, resulting in an overall expansion of 6.8 per cent in 2024. That compares with 7.8 per cent in 2023.

"The slowdown versus 2023 sets a cautious tone for 2025. With interest rates staying higher for long, domestic demand will moderate.

"Potential US tariffs on Indian imports will make for a challenging export environment that hampers growth. However, that won't be too influential, given India's relatively closed economy. Our baseline has GDP growth slowing to 6.4 per cent in 2025," Raman said.

Moody's Analytics said the rupee has weakened significantly since the start of the U.S. Federal Reserve's easing cycle in September.

Donald Trump's win in the US presidential race only put more pressure on the rupee as investors sold Indian assets, jumping on a greenback rally.

Despite interventions by the Reserve Bank of India, the rupee lost more ground in the opening weeks of 2025, hitting a record low of Rs 86.6 to the US dollar in mid-January.

"Although the rupee hasn't weakened as much as some other developing economies' currencies, we expect it to keep depreciating over the long term as a growing middle class increases the country's reliance on imports. The central bank will be hard-pressed to offset that pressure on the currency," Raman said.

Moody's Analytics expect inflation to cool to 4.7 per cent in 2025 from 4.8 per cent in 2024.

Food inflation should ease, but the tumbling rupee will likely add to input costs, driving up imported inflation.

Currency weakness may also delay rate cuts, Raman said.

"India faces a challenging 2025; growth is slowing, the rupee looks set to tumble against the greenback, and headline inflation is far from the midpoint of the central bank's target range," Raman said.