Inflation and Monetary Policy
India’s retail inflation eased to 3.16% in April, marking the lowest since July 2019 and staying below the Reserve Bank of India’s (RBI) medium-term target of 4% for the third consecutive month. This moderation has provided the RBI with policy space, leading to a rate cut in February—the first in five years—reducing the policy rate to 6.25%
GDP Growth and Economic Projections
The Indian economy grew by 6.2% in the third quarter of FY25, recovering from a seven-quarter low of 5.6% in the previous quarter. The full-year growth is projected at 6.4%, with forecasts for FY26 ranging between 6.3% and 6.8%. However, Moody’s has cautioned about potential slowdowns due to inflationary pressures and moderating demand.
Trade and Geopolitical Developments
India’s trade negotiations with the U.S. have seen mixed signals. While India has offered to reduce its tariff gap by two-thirds to facilitate a trade pact, recent WTO filings suggest a hardening stance from New Delhi. Additionally, the Indian rupee experienced relief due to a ceasefire with Pakistan and a temporary U.S.-China tariff truce, strengthening by 0.5% against the U.S. dollar.
Sectoral Highlights
Banking: Japan’s Sumitomo Mitsui Banking Corporation is set to acquire a 20% stake in Yes Bank for $1.58 billion, marking a significant cross-border investment in India’s banking sector.
Aviation: Air India and IndiGo have canceled flights amid safety concerns, causing disruptions in travel plans.
Corporate Earnings: Markets are anticipating insights from upcoming corporate earnings reports, with key companies like TCS and L&T among top trading ideas.
Consumer Spending and Investment
Urban consumption remains subdued despite favorable economic indicators. Factors such as a middle-class debt crisis and stagnant wages are impacting disposable income. However, forecasts for strong monsoon rains and improved rural economic performance may offer relief.
Conclusion
India’s economy in May 2025 reflects a complex interplay of positive macroeconomic indicators and underlying challenges. While inflation is under control and growth projections remain optimistic, issues like subdued urban consumption and global trade uncertainties warrant cautious optimism. Continued policy support and structural reforms will be crucial in sustaining economic momentum.
