India’s GDP growth estimated to decelerate to 6.3% in 2025, says Goldman Sachs; sees shallow RBI rate cut from Q1CY25

India’s economic growth is expected to decelerate in 2025, said Goldman Sachs even as it believes that the economy will likely be insulated from global shocks emanating out of a potential trade war between US and China.

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, said Goldman Sachs.

The foreign investment bank also pushed back its forecast for the start of interest rate easing by the Reserve Bank of India (RBI) to the first quarter of calendar year 2025 (Q1CY25) but continues to expect only 50 basis points (bps) cumulative cuts by mid-year.

“While the cyclical growth slowdown calls for easier monetary conditions in our view, the ‘stronger dollar’ scenario will mean the RBI will likely proceed cautiously. Given macro-prudential tightness, retail loan growth may remain tepid even in the face of lower rates,” said Santanu Sengupta, Chief India economist at Goldman Sachs and his team in a report.

Inflation

Goldman Sachs forecast headline inflation at 4.2% YoY in CY25, with food inflation at 4.6% YoY, owing to adequate rains and higher sowing of summer crop. Food supply shocks due to weather-related disruptions remain the key risk to this view.

Core inflation should be around the RBI’s target of 4% YoY in CY25, with some downside risk in the event of Chinese goods overcapacity being reallocated to regional markets due to US tariffs, it said.

Forex outlook

India’s current account deficit (CAD) remains contained, helped by robust services exports, said the investment bank, forecasting the CAD at 1.3% of GDP in CY25.

India’s balance of payments stands to benefit from structural FDI inflows from supply chain relocation. Foreign exchange reserves (>$680bn) are adequate, and the RBI hasn’t been shy of using them to offer stability to the INR in recent years. This has meant that the INR has consistently offered the best carry-vol ratio in EM FX over the last year, it said.

It expects mid-teens earnings growth to keep Indian equities well supported into the year ahead, especially after valuations have corrected a bit in recent weeks and the yield-to-vol combination in India Government Bonds to continue to remain attractive for global investors.

This, along with lower sensitivity of Indian growth to global growth and lower beta to CNY, makes INR the most insulated currency in the region to global shocks, Goldman Sachs said, while forecasting USD/INR to depreciate modestly to 85.5 – 86 over the next 3-6 months, but to remain stable thereafter.

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