Goldman Sachs Predicts Slower GDP Growth For India In 2025

Goldman Sachs has forecast India's GDP growth to slow to 6.3% year-on-year in 2025, citing the continued fiscal consolidation and slower credit growth due to macro-prudential measures by the Reserve Bank of India as key reasons. The brokerage firm noted that despite this expected slowdown, India’s long-term structural growth prospects remain strong. 

India will likely be a relatively insulated economy from global shocks emanating out of a potential trade war between the US and China, it said.

“Though India’s strong long-term structural growth story remains intact, we forecast GDP growth to decelerate to 6.3% yoy in CY25, on continued fiscal consolidation and slower credit growth on macro-prudential tightening by the RBI,” Goldman Sachs said in a note on Monday.

Goldman Sachs has delayed its forecast for RBI rate cuts, expecting the first reduction in February 2025, followed by another in April. The firm predicts a cumulative 50 basis points cut, bringing the repo rate down from 6.50% to 6%. This adjustment would also allow the overnight interbank rate to fall to 5.75%, the lower end of the liquidity adjustment corridor.

The RBI is likely to adopt a cautious and measured approach due to uncertainties surrounding global trade policies and their impact on financial markets, Goldman Sachs said, adding that the current cyclical growth slowdown appears to be a return to trend, meaning monetary policy adjustments may not need to go significantly below the estimated nominal neutral rate of 6% for India.

"RBI is likely to be cautious (given uncertainties on global trade policies and their impact on financial markets) and shallow (as we view this cyclical growth slowdown as a reversal to trend, so monetary policy doesn’t need to go materially below the nominal neutral rate, which we estimate at 6% for India)," Goldman Sachs said. 

The firm also noted that while easing is necessary to address cyclical growth pressures, the RBI may proceed cautiously due to the stronger dollar scenario. 

Goldman Sachs projects headline inflation to average 4.2% year-on-year in 2025, down from over 7% in 2024. Food inflation is expected to fall to 4.6%, supported by better rainfall and improved summer crop sowing, which could lead to a more robust harvest, it said.

The comments come after the country’s consumer price index-based inflation rose to a 14-month high of 6.21% in October from 5.49% in September, breaching the RBI’s target range of 4%, with a tolerance band of 2 percentage points on either side. The increase was driven by higher prices for vegetables, fruits, and edible oils.

"Core inflation has made steady progress lower from 5.0% yoy (average) in CY23 to 3.5% yoy in CY24. We forecast a continued decline in headline inflation towards the RBI’s target of 4% in CY25 as we expect nearly 2.5 percentage points lower food inflation next year—adequate rainfall and good sowing of the summer crop point toward a better broad-based crop harvest," Goldman Sachs said.

However, the firm cautioned that weather-related disruptions remain a significant risk. "Weather-related disruptions in recent months, which have aggravated domestic food supply shocks, remain the key risk to our view," it said.

The RBI has highlighted inflationary pressures in its November bulletin. The country’s central bank said that high primary food prices are spilling over into processed food categories, and core inflation is showing signs of an uptick. This has added complexity to its task of managing price stability and supporting growth amid domestic and external pressures.