India's economic trajectory in the second half of 2025 presents a mixed bag of opportunities and challenges, demanding a nuanced understanding of the interplay between various macroeconomic factors. A recent report by LLama Research highlights that while India maintains a "Goldilocks" macro environment – characterized by robust growth and moderating inflation – certain vulnerabilities warrant close attention. These include softening industrial momentum, a widening trade gap, and early signs of business caution.
While the services sector continues to exhibit strong growth, industrial output is showing signs of weakening. Economists are optimistic about India's industrial production growth in the second half of FY25, citing factors such as government capital expenditure and the festive season. The manufacturing sector has shown expansion, particularly in consumer durables and infrastructure goods. Government spending and the festive season have played crucial roles in driving this growth. Economists expect the upcoming Budget and RBI policy to further support the economic momentum. However, the long-term sustainability of this growth remains a concern.
India's trade deficit has been a persistent concern, and recent data indicates a widening of this gap. In April 2025, the trade deficit widened to $26.42 billion, marking the sharpest gap since November 2024. Imports surged by 19.12% annually to $64.91 billion, while exports grew at a softer 9.03% annually to $38.49 billion. The increase in imports was driven by gold, electronics, and petroleum. Despite growth in export sectors like IT and services, the trade deficit persists due to the high cost of essential imports like crude oil and gold. India's dependence on imports for energy and technology contributes to this imbalance. Factors such as increased protectionism and trade restrictions could further impact India's trade and economic outlook.
After subdued earnings in the first half of the financial year amid global headwinds, India Inc. is taking a cautious approach to capital expenditure for the second half of the financial year ending March 2025, according to management commentary. This caution is reflected in the Business Expectations Index (BEI), which decreased to 120 points in the first quarter of 2025 from 120.30 points in the fourth quarter of 2024. However, the Reserve Bank of India (RBI) remains optimistic about private investments picking up. Consumer and business confidence for the year ahead remain high, and the investment scenario is brighter as corporations step into 2025 with robust balance sheets and high profitability.
Despite these challenges, India's economic outlook remains positive, with a projected GDP growth of 6.2% for 2025. Domestic consumption, export growth, and monetary policy are driving India's growth. The RBI's actions, such as rate cuts and CRR reduction, are boosting liquidity and spurring investment and spending. Government initiatives like the "Make in India" campaign and investments in infrastructure and renewable energy are also contributing to economic growth.
To mitigate the risks and sustain growth momentum, India needs to focus on several key areas:
By addressing these challenges and leveraging its strengths, India can navigate the complex global landscape and achieve its long-term economic goals.
