India's soft industrial momentum, widening trade gap & business caution, key risks in H2 2025: Report

New Delhi [India], June 14 : India's soft industrial momentum, a widening trade gap, and early signs of business caution warrant close tracking as H2 2025 unfolds, according to a report by LLama Research.

While the broader economic outlook remains positive, the report added that there are signs that some areas of the economy may need close attention going forward.

The report said "India continues to run a "Goldilocks" macro script strong growth and moderating inflation with solid buffers in place. However, soft industrial momentum, a widening trade gap, and early signs of business caution warrant close tracking as H2 2025 unfolds".

India is currently in a high-growth, low-inflation sweet spot. The growth is being led largely by the services sector, which continues to show strong momentum. However, industrial output is showing signs of weakness and needs to be watched carefully in the coming months.

The report noted that economic growth is accelerating. India's GDP rose to 7.4 per cent in the first quarter of 2025, up from 6.2 per cent in the last quarter of 2024. Gross Value Added (GVA) also improved to 6.8 per cent, reflecting resilience in domestic economic activity.

Business activity indicators remain strong. The Manufacturing Purchasing Managers' Index (PMI) stood around 58, while the Services PMI was in the 59-61 range, pointing to steady demand in both sectors.

However, signs of industrial slowdown are emerging. The Index of Industrial Production (IIP) has slowed to 2.7 per cent, due to weakness in mining, manufacturing, and electricity sectors.

On the inflation front, there is positive news. Consumer Price Index (CPI) inflation fell sharply to 2.8 per cent in May 2025, from 5.2 per cent in December 2024, mainly due to a decline in food prices. Core inflation remains stable around 4 per cent, and the Wholesale Price Index (WPI) at 0.85 per cent suggests more price stability ahead.

Despite the positive growth and inflation trends, the report cautioned that several risks need monitoring. These include a widening trade deficit that could put pressure on the Indian rupee if capital inflows slow, persistent core inflation, global commodity price swings, and weak growth in core sectors.

In addition, business sentiment is showing early signs of caution, and flat labour force participation remains a long-term structural concern.

The report concluded that while India's macroeconomic situation appears robust, close tracking of key indicators will be crucial as the second half of 2025 progresses.

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