Reserve Bank of India (RBI) Governor Sanjay Malhotra shares key insights on the economy and business optimism for 2025. Here’s what he had to say

Amid government criticism over the Reserve Bank of India’s (RBI) focus on controlling inflation rather than economic growth, newly appointed RBI Governor Sanjay Malhotra said on December 30 that the Indian economy is expected to show improvement in 2025, Driven by strong growth. Consumer and business confidence.

In the introduction to the Financial Stability Report, Malhotra emphasized the Reserve Bank of India’s commitment to maintaining financial stability, which he believes is critical to supporting sustainable growth of the Indian economy. “While we work to ensure the stability of financial institutions and broader systemic stability, our goal remains focused on promoting a higher growth trajectory,” he added.

Malhotra also noted that despite the global uncertainty, the Indian economy is likely to gain momentum in the latter half of the current financial year. “Despite the ongoing global macrofinancial challenges, the Indian economy is expected to regain its pace after the slowdown in the first half of 2024-25,” he said. “Consumer and business confidence remains high, and the investment climate looks promising, as companies enter 2025 with strong balance sheets and healthy earnings.”

In its monthly economic review for November, the Ministry of Finance had pointed to potential structural factors contributing to the slowdown in the first half of 2024-2025. India’s GDP growth fell to a seven-quarter low of 5.4% in the second quarter ending September 2024, bringing GDP growth in the first half to 6%.

The slowdown, coupled with moderate inflation, is raising expectations that the RBI may cut interest rates at the next Monetary Policy Committee meeting.

Malhotra also stressed that India’s financial sector regulators are moving ahead with reforms and enhanced monitoring. He highlighted the strength of the financial system, supported by strong earnings, declines in impaired assets, and strong capital buffers. The stress test results indicate that both the banking sector and NBFCs will maintain capital levels well above the regulatory minimum, even under stress scenarios.

“We continue to build and secure public trust, and support India’s ambitious goals. We are committed to developing a modern, customer-centric, technologically advanced and financially inclusive financial system,” he said.

Regarding the global economy, Malhotra acknowledged its resilience in the face of significant challenges, such as political and economic uncertainty, ongoing conflicts, and the fragmentation of international trade. However, he noted that the global outlook is brightening, as inflation is expected to continue to decline, supporting a recovery in purchasing power. As monetary policy gains greater scope to support economic activity, favorable financial conditions are expected to boost global GDP growth after a long period of low growth.

Although the outlook looks promising, Malhotra warned that risks persist in the medium term, including potential escalation of geopolitical conflicts, financial market instability, extreme weather events, and rising debt levels. Additional uncertainties come from stretched asset valuations, vulnerabilities in less regulated non-bank financial intermediaries, and challenges posed by emerging technologies.