India’s Economy Set to Grow Amid Key Challenges

Why in the news?

The UN’s World Economic Situation and Prospects report highlights India’s projected 6.6% growth in 2025, easing currency pressures, infrastructure-driven expansion, robust exports, and opportunities from untapped critical minerals amid persistent gender disparities.

India's Economy Set to Grow Amid Key Challenges

India’s Economic Outlook for 2025:

  • India’s economy is projected to grow by 6% in 2025, driven by robust private consumption and investment.
  • The capital expenditure on infrastructure development is expected to yield strong multiplier effects on growth.
  • Export growth, especially in services, pharmaceuticals, and electronics, will continue to support economic activity.
  • A favorable monsoon in 2024 has improved agricultural output expectations for 2025.
  • Expansion in manufacturing and services sectors will sustain economic momentum.

Currency and Monetary Policy Trends

  • The Indian rupee hit an all-time low of ₹85.93 per dollar, partly due to a strong US dollar, leading to a drop in foreign exchange reserves to $640.28 billion in December.
  • The UN report predicts a reduction in currency depreciation pressures in South Asia due to monetary loosening in the US, attracting more investments to the region.
  • Inflationary pressures have eased across South Asia, allowing most central banks to halt monetary tightening.
  • The RBI maintained its policy rate at 6.5% since February 2023, while neighboring countries like Pakistan and Sri Lanka have reduced policy rates to support economic recovery.

Key Challenges and Opportunities

  • India faces substantial gender disparities in labor market participation, despite improvements. Urban unemployment remained steady at 6% in mid-2024.
  • The country has vast untapped reserves of critical minerals, including rare earth elements, which present opportunities for growth but currently account for a small share of global production.
  • Mining-dependent economies like India are well-positioned to leverage these resources in the future.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times