Current Affairs - Economy

In March 2025, India witnessed a significant drop in retail inflation to 3.34%, marking its lowest level since August 2019. This easing was primarily driven by a sharp decline in food inflation, which fell to 2.69%. The drop in prices of essential food items like vegetables, eggs, pulses, meat, fish, and milk played a key role in bringing overall inflation down. Reflecting this positive trend, the Reserve Bank of India adjusted its inflation forecast for 2025–26 to 4.0% from an earlier projection of 4.2%, attributing the change to improved prospects in food prices.

Crisil has projected India’s GDP growth rate for the financial year 2025–26 at 6.5%. This projection reflects optimism backed by factors like expected monetary easing, tax relief, and a favourable monsoon, which could stimulate agricultural output and consumption. Despite these positive indicators, the forecast includes caution over potential risks such as increased US tariffs that may affect global investor confidence and reduce investment inflows. On the upside, lower crude oil prices and stronger domestic demand are anticipated to bolster economic momentum, making the 6.5% estimate a balanced outlook amidst both opportunities and external challenges.

The Reserve Bank of India reduced the repo rate by 0.25%, or 25 basis points, bringing it down from 6.25% to 6%. This marks the second consecutive rate cut of the same magnitude, indicating a clear shift in the RBI's approach towards supporting economic growth amid a global slowdown and domestic demand concerns. The Monetary Policy Committee unanimously agreed to the rate cut and also changed the policy stance from “neutral” to “accommodative,” which implies a greater likelihood of further cuts in the future. This move is aimed at easing borrowing costs to stimulate consumption and investment, especially during uncertain global trade conditions.

In February 2025, India's Index of Industrial Production (IIP) grew by just 2.9%, its weakest performance in six months. This slowdown was driven by broad-based sluggishness across mining, manufacturing, and electricity sectors, compounded by a high base effect from the previous year. While the consensus forecast by Reuters had predicted a 4% growth, the actual figure undershot expectations. Mining rose only 1.6%, manufacturing increased 2.9%, and electricity output was up by 3.6%. Among use-based categories, capital goods showed robust growth at 8.2%, but most other segments—including consumer non-durables—faltered, reflecting a cooling in industrial momentum.

The Asian Development Bank (ADB), in its April 2025 Asian Development Outlook report, has projected India's GDP to grow by 6.7% in the fiscal year 2025. This growth outlook reflects the economy's resilience amid global uncertainties, supported by rising domestic demand, rural income growth, and controlled inflation. Additional drivers include fiscal reforms such as tax cuts for the middle class and monetary easing through repo rate reductions. Despite a slight downward revision by the Reserve Bank of India (RBI) to 6.5%, the ADB maintains confidence in the momentum of India’s economic expansion into FY2026.