India’s macroeconomic outlook remains largely optimistic as the nation steps into the second half (H2) of 2025, backed by robust GDP growth, softening inflation, and continued strength in the services sector. However, a recent report by LLama Research brings attention to emerging vulnerabilities that need close monitoring over the coming months. These include a widening trade gap, soft industrial momentum, and early signs of business caution—key indicators that may shape the trajectory of India’s economy in H2 2025.

According to the report, India continues to follow a "Goldilocks" macroeconomic scenario—a phase marked by high growth and low inflation. This balance has created a favourable policy environment, driven largely by resilient domestic demand, especially in services, which continues to perform strongly.

Growth Performance in Q1 2025

The report highlights that India’s GDP grew by 7.4% in Q1 2025, up from 6.2% in the previous quarter (Q4 2024), showcasing an acceleration in overall economic activity. Additionally, Gross Value Added (GVA) rose to 6.8%, underlining the strength in domestic productivity and broad-based expansion across sectors.

This India economic outlook 2025 is supported by high-frequency indicators that reflect healthy business activity. The Manufacturing Purchasing Managers' Index (PMI) stood at 58, while the Services PMI ranged between 59 and 61, indicating sustained momentum in both sectors. This reinforces the narrative of a booming services industry, which has become the backbone of India’s ongoing economic expansion.

Concerns over Industrial Output

Despite these positive indicators, LLama Research expresses concern over softening industrial momentum. The Index of Industrial Production (IIP) slowed down significantly to 2.7%, largely due to underperformance in mining, electricity, and manufacturing. This decline in core industrial sectors signals that the industrial engine of India’s economy may be losing steam just as services continue to soar.

The India industrial growth 2025 story now has two sides: strong service-led demand versus weak industrial fundamentals, highlighting the need for balanced policy interventions.

Widening Trade Deficit and Rupee Pressure

Another red flag raised in the report is the widening trade deficit, which has implications for both external sector stability and the Indian rupee. A larger trade gap could exert downward pressure on the rupee, especially if capital inflows slow down in response to global uncertainties.

The India trade deficit news is especially concerning as it may lead to import-driven inflation, hurting consumption and weakening the currency. It also increases India’s dependence on foreign capital to finance deficits, making the economy vulnerable to external shocks and commodity price swings.

Inflation Trends Show Promise

On the inflation front, however, the news remains positive. Consumer Price Index (CPI) inflation fell sharply to 2.8% in May 2025, down from 5.2% in December 2024. This decline was driven primarily by a drop in food prices, which continues to be a volatile component of headline inflation.

Meanwhile, core inflation remains steady around 4%, and the Wholesale Price Index (WPI) is at a modest 0.85%, pointing to broader price stability in the economy. These trends support the argument that India’s inflationary environment is under control, creating room for policymakers to focus on growth-oriented strategies.

Business Sentiment and Labour Concerns

Despite strong macro indicators, the report warns about emerging signs of caution among businesses. Corporate commentary and market data suggest that investment intentions may be moderating, potentially as a response to global uncertainties, supply chain disruptions, or expectations of slowing domestic demand.

Another persistent concern is flat labour force participation, which has been a structural issue in India’s economy. Even as jobs are being created in the services sector, labour absorption in manufacturing and formal employment continues to lag, limiting inclusive growth potential.

Risks to Monitor in H2 2025

The report lists several risks that should be closely tracked as H2 2025 progresses:

• India’s widening trade deficit, which can impact the rupee and foreign reserves if global capital inflows dwindle.

• Core sector weaknesses—mining, power, and manufacturing—can drag down overall growth if not corrected soon.

• Persistent core inflation may return if global commodity prices spike or if food inflation re-emerges.

• Global geopolitical or financial shocks could disrupt export demand and cause volatility in capital markets.

• Cautious business sentiment may delay capital expenditure plans and slow down job creation.

A Balanced Outlook for Policymakers

While India’s macroeconomic situation appears resilient, policymakers are urged to maintain a vigilant approach, especially toward external sector management and industrial policy support. This involves:

• Boosting industrial production through incentives and reforms.

• Managing the trade deficit through targeted import substitution and export promotion.

• Ensuring food price stability to maintain low inflation.

• Enhancing labour market participation through skill development and formal job creation.

Conclusion

To summarise, the India economy H2 2025 outlook remains promising, driven by strong GDP growth, tamed inflation, and vibrant services. However, risks related to weak industrial growth, a widening trade gap, and early caution in business sentiment underscore the need for proactive economic management.

As India navigates global headwinds and domestic challenges, continuous tracking of IIP, trade balance, PMI indices, and inflation trends will be critical. The Indian economy latest news suggests strength in the face of uncertainty, but long-term stability will depend on structural reforms, investment flows, and labour market activation.

Going forward, stakeholders—from policymakers and corporates to investors—must remain alert and adaptive to ensure that India's economic story in 2025 remains not only one of high growth but also inclusive, balanced, and sustainable.

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