Will India’s GDP Growth rate further shrink in 2025-26?

Will the economic slowdown continue despite the RBI’s decision to cut interest rates?

Gross Domestic Product or GDP is the total value of all goods and services produced in a country within a specific period.

It is considered a key metric used to gauge a country’s economic condition.

Indian GDP Growth Rate Falls

After the GDP growth rate in India fell from 8.2% in 2023-24 to 6.6% in 2024-25, economic experts have expressed apprehension that it may go further down.

Moody’s Analytics has said in its recent report that India’s GDP rate may fall to 6.4% in 2025-26.

What Has Moody’s Said?

It said that the fall in the growth rate may be the result of the imposition of increased tariffs by the US on a reciprocal basis.

It may also be the cumulative impact of softening of demand resulting in easing out of exports.

The credit rating agency has said in its report titled ‘Asia-Pacific Outlook: Chaos Ahead’ that the economic growth may slow down not only in India but other South Asian countries too.

It expressed apprehensions that the trade diversion and changes in trade policies may further deepen the slowdown.

Moody’s Analytics said, “Growth across the region will slow as new tariffs and softening global demand weigh on exports.”

It said that India’s GDP is expected to grow 6.4% both in the 2025 and 2026 fiscal years.

Will Chinese Economy Slow Down?

Talking about China, it said that its GDP growth will further weaken and reach 4.2% in 2025 and 3.9% in 2026.

The fastest-growing economy of Asia registered a 5% growth rate in 2024.

Why Did the Indian Economy Slow Down?

Explaining the slowing down of the Indian economy, Moody’s said, “India is facing a bumpy road in 2025. A weakening rupee, declining foreign investment, and volatile inflation are the areas of greatest economic risk.”

It added, “Changes in fiscal and monetary policy, likely in the first half of the year, is needed if India is to achieve 6.4% growth.”

What Next?

Finance Minister Nirmala Sitharaman in Union Budget 2025-26 made the annual income up to Rs 12 lakh free of Income Tax so that the middle class is left with disposable income, which he can use in more spending.

The decision was taken to increase spending, which may trigger economic growth.