India’s economic challenges in 2025

Source: The post India’s economic challenges in 2025 has been created, based on the article “India 2025: Navigating an uncertain world” published in “Business Standard” on 2nd January 2025

UPSC Syllabus Topic: GS Paper3- Economy- growth and development

Context: The article discusses India’s economic challenges in 2025, including slowing growth and the need for more reforms. It mentions global risks like trade wars and financial tightening that could impact growth. It also highlights the importance of strategic trade deals and domestic policy changes to improve economic conditions. India’s economic challenges in 2025

For detailed information on Global Events Impacting India’s Economic Outlook in 2025 read this article here

What is the Current State of Affairs Economy?

1. Global Economy
2. The IMF forecasts a slowdown in global growth, projecting a baseline annual growth rate of 3.1% for 2024–2029, down from 3.7% during 2000–2019.
3. Key risks include conflict escalation, trade policy uncertainty, reduced migration, and tightening financial conditions.
4. Specific impacts are estimated as 0.5 percentage points reduction from conflicts and trade policies each, and 0.25 percentage points from lower migration and financial tightening each.
5. Indian Economy
6. India’s economic growth dropped to 5.4% in Q2 FY25, after higher growth rates in previous years (8.7% in FY22, 7.2% in FY23, 8.2% in FY24).
7. Concerns include a lack of domestic private investment and peaking GCC investments.
8. Fiscal deficit is projected at 4.9% of GDP for FY25 with public debt at 83% of GDP.

For detailed information on India’s Economic Slowdown and Its Future Outlook read this article here

Why is India’s Economic Growth Slowing?

1. Investment Peaks: The growth previously benefited from public capital expenditure and investments in global capability centers, which have now peaked.
2. Lack of Private Investment: There is a noticeable lack of revival in domestic private investment.
3. India struggles with red tape, labor, and land laws, which make it difficult to attract foreign investment despite subsidies like production-linked incentives (PLI). The ongoing issues with these regulations have prevented significant investment relocation from China, except for the production of iPhones.
4. Impact of Global Risks: Conflicts, trade policy uncertainties, and tighter financial conditions globally are expected to lower global growth further, affecting India indirectly.

What Strategies Could India Adopt?

1. Despite challenges, India could potentially attract more foreign investment through a China+1 strategy if a US-China trade war intensifies.

2. To encourage investment, particularly in labor-intensive sectors, India needs to ease regulations and collaborate with state governments.

3. India could benefit from negotiating trade deals, such as with the US, to manage trade deficits and expand trade relationships.
4. Joining groups like the Regional Comprehensive Economic Partnership (RCEP) or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) might increase deficits with China and complicate trade relationships.

What is the Economic Outlook for 2025?

1. The RBI predicts India’s growth will be around 6.7%, and the IMF forecasts 6.5% growth.
2. However, achieving a higher growth rate of 7.5-8% will require substantial reforms.
3. The upcoming budget is seen as a critical opportunity for implementing these necessary reforms.

Question for practice:

Discuss how India’s economic growth could be influenced by global risks such as trade wars and financial tightening in 2025.