India’s Growth Engine Downshifts as Rate Cuts Meet Cautious Banks and Soft Capex

 

Economists are bracing for India’s first-quarter GDP to show a gentler pace, with projections clustering around 6.7%—slower than the 7.4% logged three months earlier. The expected deceleration doesn’t scream trouble; it sketches an economy settling from a brisk sprint into a manageable jog as policy support and public spending meet a more hesitant private sector.
Start with money and credit. The central bank has done its part, trimming rates by a combined three quarters of a point this year as inflation cooled. But cheaper policy money hasn’t flowed evenly into the street. Big private lenders, still guarding margins after a long fight for deposits, have been measured in cutting loan rates. That caution shows up in the data: big-ticket buys and corporate borrowing look steadier, not surging.
Industry tells a similar story. Factory indicators softened in late spring, reflecting both domestic caution and a world economy that hasn’t quite found its stride. Export-heavy niches—from engineering goods to select chemicals—are navigating tariff noise and patchy orders. None of this is dramatic; all of it argues for a slower gear than India ran in the previous fiscal year.
What’s kept the wheels turning is the state. Government capex on roads, power, and networks remains the economy’s metronome, pulling along suppliers and construction jobs. In the countryside, better crop prospects and easing food inflation have taken some pressure off budgets, lifting staples and essentials. The recovery is real, if uneven: mass-market demand looks sturdier than the discretionary items that depend on credit and confidence.
Looking ahead, the glide path most forecasters see is “down a notch, not downhill.” The median expects growth to step lower through the year, landing the full fiscal period in the low-6% range—the slowest in five years, yet still near the top of the global league tables. That outcome rests on three hinges. First, whether boardrooms convert project pipelines into shovels-in-ground spending. Second, whether banks speed up the pass-through of earlier rate cuts as deposit pressure eases. Third, whether the trade backdrop stays calm enough for exporters to plan with conviction.
Policy will stay in the foreground. A softer GDP print would nudge the central bank toward additional easing, but only if inflation behaves. Food prices, in particular, can upset the script quickly. On the fiscal side, Delhi’s investment push has legs, but investors will watch how it squares with deficit targets and borrowing costs.
For markets, this is less about one number than about momentum. Foreign capital will keep chasing India’s structural story—scale, demographics, digitization—so long as macro stability holds. Near term, though, leadership may come from firms with clear pricing power, cleaner balance sheets, and capex that is already funded and under way. If banks loosen faster and external demand steadies, growth can re-accelerate into 2026. If not, a year of “good, not great” might be the most realistic bar—and that’s still a strong showing in today’s world.