India Facing An Unprecedented Economic Slowdown In 2025

After a decade of exceptional growth, India’s economy is showing signs of fatigue. Government forecasts predict a growth rate between 6.3% and 6.8% for 2025, a significant decline from the 8.2% in 2023-2024.

A cyclical slowdown in a dynamic economy

India, the fifth largest economic power in the world, is going through a transitional phase. In the first quarter of 2024-2025, GDP growth slowed to 6.7%, its lowest level in 15 months.

This slowdown is explained by several cyclical factors, notably the elections and a severe heatwave affecting the northern part of the country. Agriculture has been particularly impacted, with growth reduced to 2.7% compared to 4.2% the previous year, while the tertiary sector slowed from 10.7% to 7.2%.

Employment remains a major concern: by the end of 2023, 45% of 20-24 year-olds were unemployed, according to the Center for Monitoring Indian Economy.

To address this, Narendra Modi, re-elected for a third term, is strengthening his “Make in India” and “Self-Reliant India” initiatives to accelerate industrialization. These efforts are starting to bear fruit: in 2024, India attracted a quarter of global industrial investments.

Persistent structural challenges

The current slowdown highlights deep structural weaknesses. Persistent inflation and global trade tensions are slowing growth. Despite a recent diplomatic warming, relations with China remain a source of concern, particularly due to the mega-dam project in Tibet.

India is also struggling to fully integrate into global trade, with import duties reaching 18.1% in 2022, according to the World Bank.

To revive its economy, New Delhi is preparing measures aimed at boosting consumption and private investment. Its ambition is clear: to make India a developed economic power by 2047, the year of its centenary of independence.

Despite this slowdown, the IMF remains optimistic, forecasting a growth rate of 6.8%, higher than that of China (4.6%). Facing these challenges, India is betting on artificial intelligence and plans to develop its own generative AI model by 2025.