India’s economy is facing a mix of opportunities and challenges. Moody’s Analyticshas revised India’s GDP growth projection to 6.4% for 2025, down from 6.6% in 2024, questioning whether domestic demand alone can sustain growth. It’s time to ask whether the country’s economic resilience is as strong as it is often claimed to be. The global picture isn’t helping—rising U.S. tariffs and weakening demand threaten exports, and the Asia-Pacific region is also slowing down, with China’s GDP expected to drop to 4.2% in 2025. While the government remains committed to domestic demand-driven growth, there is a growing disconnect between economic policy rhetoric and on-the-ground realities. Investment in infrastructure, employment schemes, and fiscal stimulus might provide a short-term buffer, but relying on private consumption and investment alone seems like an incomplete strategy in the face of global uncertainty.
Adding to these concerns, RBI Deputy Governor M. Rajeshwar Rao has warned against “reckless financialisation,” highlighting the rise in unsecured lending and speculative trading in derivatives. The need for financial literacy and balanced regulation is crucial to prevent systemic risks while ensuring innovation and financial inclusion.
At the same time, Indian households are under increasing financial strain. A study by PwC and Perfios found that people are spending nearly a third of their income on loan repayments, with mid-level earners being the most affected. Despite a 9.1% salary increase over six years, household savings have dropped to a five-year low of just 5.1% of GDP. The surge in personal loans—up 13.7% year-on-year—reflects rising aspirations but also growing financial stress.
Meanwhile, the Reserve Bank of India is taking steps to manage financial stability. To address a severe liquidity crunch in the banking system, the central bank will inject $10 billion through a foreign exchange swap on Feb. 28. This move follows a $5 billion forex swap last month and aims to ease short-term funding pressures as banks struggle with fiscal year-end liquidity demands. The RBI’s dollar sales to stabilize the rupee amid U.S. trade policy uncertainties have also contributed to the liquidity deficit, now standing at around ₹2 trillion. Market volatility continues to impact investors, with the correction in equity markets significantly affecting Life Insurance Corporation (LIC). Since December, LIC’s stock holdings have lost over ₹84,000 crore in value, reflecting a 5.7% decline. Analysts expect continued market fluctuations, adding uncertainty to India’s financial landscape.
-Team CFA