RBI's Interest Rate Cut Will Support India's Growth Momentum

Robust Quarterly Growth Backed by Policy Measures

India’s Gross Domestic Product (GDP) expanded by 7.4% in Q4 FY25, reflecting solid economic momentum. The rate cut measures announced by RBI on Friday will help in sustaining and increasing the growth momentum.

FY25 GDP Growth at 6.5% Annually

For the full financial year FY25, the GDP growth stood at 6.5%, marking a decline from the 8.2% growth recorded in FY24. While slightly lower, this figure remains close to the pre-pandemic decadal average of 6.6%.

Key Drivers of Economic Performance

• Private consumption staged a recovery in FY25 after underperforming relative to GDP growth in the previous two years.
• Urban demand saw improvement due to lower inflation and income tax relief, which increased disposable income.
• Rural consumption received a boost from a favourable monsoon and strong agricultural output.
• The Indian Meteorological Department has forecast a second consecutive year of above-normal monsoons, supporting future rural income.

External Headwinds and Domestic Investment Challenges

• Effective tariff rates on Indian exports are expected to rise, adding stress to external trade.
• Merchandise exports are likely to come under pressure, influenced by global demand dynamics and policy shifts.
• Private corporate investment witnessed minimal growth at 0.5% in FY24, in contrast to a 25.6% increase in government capital expenditure.
• The non-agricultural sector displayed signs of slowing in FY25, indicating the need for revitalised sectoral strategies.

RBI’s Role Through Monetary Policy

The Monetary Policy Committee (MPC) of the RBI undertook cuts in both the repo rate and CRR during the year.

These steps were aimed at:

• Enhancing liquidity in the financial system
• Supporting credit growth
• Creating a more favourable environment for business activity

Employment and Sectoral Transition

As per the Periodic Labour Force Survey (PLFS) for 2023-24, 46% of India’s workforce was engaged in the agricultural sector.

Transitioning this labour force into non-agricultural sectors—such as manufacturing and services—remains vital and depends on sustained growth in these areas.

Conclusion

India’s economic outlook in Q4 FY25 was positive, supported by strong policy initiatives and favourable inflation levels. However, challenges such as export risks, sluggish private investment, and uneven sectoral performance highlight the need for strategies that focus on strengthening domestic demand and revitalising private sector investment.

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