In this episode of the State of Economy Podcast, businessline’s  Shishir Kumar Sinha speaks with Sonal Varma, Managing Director and Chief Economist at Nomura, who shares her expert analysis on India’s economic landscape and insights on navigating the complexities of India’s economic recovery and policy challenges. 

The episode starts with Varma discussing some of the major disappointments of 2024, including the persistent challenge of stagflation and the growing concern around slowing consumption. While pent-up demand from the pandemic years fueled consumption in recent times, we’re now seeing a shift as growth in consumer credit and income levels slow, leading to a moderation in consumption patterns. 

Varma talks about the recovery in high-frequency indicators such as the Purchasing Managers’ Index (PMI) and manufacturing growth from October onwards. Despite some concerns about the sustainability of the growth in retail demand, the discussion offers a balanced outlook on the prospects for India’s GDP in fiscal year 2025, with expectations of 6% growth, amid mixed economic indicators. 

As India approaches the 2025 Union Budget, the episode shifts to discuss how fiscal policy could help address the slowdown in consumption. With the government’s emphasis on capital expenditure (CapEx), Varma suggests that while the government has significantly increased its CapEx to GDP ratio in recent years, the key challenge will be how to maintain the momentum without overstretching fiscal targets. 

The conversation also touches on the external economic environment, with particular attention on the implications of the Trump administration taking office in 2025. The discussion concludes with Varma’s forecast for 2025, highlighting both risks—such as the potential for slower-than-expected growth—and positive developments, including potential disinflation due to lower commodity prices.