India

Solid growth but below potential

India's growth is expected to moderate over the course of 2025 owing to weaker urban demand. In 2024, softer urban consumption amid durably elevated inflation and slower growth in the government’s infrastructure spending weighed on economic activity. Furthermore, both private investment and public consumption also increased at a slower rate. Net exports actually contributed positively to GDP, but the trend came at the expense of weak imports. Merchandise exports also recovered modestly in 2024, but the export value was again below 2022 levels. Further out, India’s growth is expected to moderate over 2025 as urban demand continues to weaken. Any improvement in urban demand is likely to be restricted by persistently tight credit conditions, higher lending standards, weak hiring trends and inflationary pressures. Rural incomes could also be affected should adverse weather conditions weigh on crop production. However, the income tax cut is expected to support urban demand. Moreover, sustained government capital expenditure should keep construction activity robust, and maintain investment.

Disinflation is expected to continue, but upside risks loom. Expectations of an early and very hot summer this year with prolonged heatwaves may affect crop production. Food disinflation, particularly for vegetables, may stall depending on weather conditions. The Reserve Bank of India (RBI) now considers it a higher priority to support growth than fight inflation. Further rate cuts are therefore expected throughout the year, although rupee volatility remains a concern for the central bank. Since mid-December 2024, liquidity has been tight in the domestic banking system due to dollar sales by the RBI and seasonal tax outflows related to Goods and Services Tax (GST) payments and advance tax payments. The RBI could reverse this situation by injecting rupees via open-market operations, delaying the introduction of the new liquidity coverage ratio and of project financing regulations.

Slower external trade activity may not necessarily have a significant impact on India’s growth since net exports typically account for less than 3% of GDP. On 2 April 2025, the US announced a reciprocal tariff of 27% on imports from India, with exemptions for items already under investigation, such copper, pharmaceuticals, semiconductors, certain critical minerals, energy and energy products. The tariff will be effective from 9 April 2025. Meanwhile, India and the US have agreed to launch new trade negotiations by the fall of 2025, with India signalling its willingness to make deeper tariff cuts on imports of vehicles, chemicals, electronics, pharmaceuticals, and medical devices, including zero duties on some agricultural products like lentils and peas, to make progress regarding talks towards a bilateral trade agreement.

Fiscal consolidation to continue

The budget deficit has been shrinking since its pandemic-related surge to -12.9% of GDP in 2020. Post-pandemic fiscal consolidation is expected to continue. The central government forecast that the budget deficit would narrow to 4.4% of GDP in FY2025-26. Consolidation relies heavily on rationalising revenue expenditure, especially cutting major subsidies. But with interest payments expected to take up a quarter of budget expenditure in FY2025-26, along with the anticipated income tax cut, the path ahead will become more challenging. If revenue receipts fall short of budget, capital spending may be reduced to keep consolidation on track. The budget deficit will continue to be mainly financed by market borrowings through government securities and treasury bills (74%), and sourced from issuing securities against small savings (22%), which are public accounts that collect money from the public via savings schemes.

Despite a larger merchandise trade deficit (7.3% of GDP), the current account deficit narrowed slightly to 0.8% of GDP in 2024, thanks to a larger services trade surplus (4.6% of GDP) associated with IT services (4.0% of GDP), and secondary income growth on back of remittances. Net remittance receipts helped finance over 40% of India’s merchandise trade deficit. Robust remittance growth (1.8% of GDP) also contributed. India's top five sources of remittances are the US, the United Arab Emirates, the UK, Saudi Arabia and Singapore, accounting for 71% of total remittance inflows in FY2023-24. Expected slower growth in the US in 2025 could impact remittances from the US, which accounts for 28% of total remittances. However, the decline could be balanced by steady growth in the Gulf nations (38% of remittances).

Return to coalition politics

The results of the 2024 general elections were a major setback for Prime Minister Narendra Modi. For the first time since he came to power in 2014, the Bharatiya Janata Party (BJP) failed to secure an absolute majority, forcing his party to rely on its coalition partners in the National Democratic Alliance (NDA) to form the government. The ruling government is now on shakier ground and could collapse if it loses support from key coalition partners, namely the Teluga Desam Party (TDP), and the Hanata Dal (United) Party (JD(U)). Notably, Nitish Kumar, Chief Minister of Bihar and leader of the JD(U) joined and then left the NDA, before again returning to the NDA. The ruling coalition NDA holds 54% of the Lok Sabha, the lower house of the Parliament, while the BJP commands 44%.

Recent regional electoral wins by the BJP in Haryana, Maharashtra and New Delhi have dented the opposition’s momentum since the 2024 general election. But these victories may not necessarily strengthen Prime Minister Modi’s political position as they were the result of grassroots efforts by the Rashtriya Swayamsevak Sangh (RSS), a cultural organisation that advocates a Hindu nationalistic agenda, and viewed as an ideological mentor of the BJP. Relations between RSS and BJP have soured in recent years.

India’s longstanding commitment to strategic autonomy is a cornerstone of its foreign policy and the country prefers to strike its own path in global geopolitics. While India has close strategic ties with the US and is part of the Quadrilateral Security Dialogue (Quad) with Australia, Japan and the US, it is the only major power to have membership in other organisations such as BRICS, ASEAN Regional Forum and Shanghai Cooperation Organisation. Russia remains a key strategic partner for India, especially for defence and energy. Meanwhile, there is progress towards resolving disputes along the Himalayan border after India and China agreed on patrolling arrangements to de-escalate tensions following the Galwan Valley clashes in 2020, the first fatal confrontation since 1975. But the threat of fresh clashes will subsist until bilateral relations have truly improved. India has also deepened ties with Israel, reflected in its membership in I2U2 (Israel, India, United Arab Emirates and the US) and the India-Middle-East-Europe Corridor (IMEEC).

Payment

Due to the increasingly developed banking network in India, SWIFT bank transfers are becoming more popular for both international and domestic transactions.

Standby Letters of Credit constitute a reliable means of payment, as a bank guarantees the debtor’s credit quality and repayment abilities. Confirmed Documentary Letters of Credit are also recognised, although these can be more expensive, as the debtor guarantees that a certain amount of money is available to the beneficiary via a bank.

Post-dated cheques, a valid method of payment, also act as a debt recognition title. They allow for the initiation of legal and insolvency proceedings in cases of outstanding payments.

Debt Collection

Amicable phase

Legal proceedings

Indian companies have a preference for amicable recovery methods, as the country’s judicial system is both expensive and slow. There is no fixed period for court cases, while the average length is from two to four years. The statute of limitations is three years from the due date of an invoice. The statute of limitations can be extended for an additional three years, if the debtor acknowledges the debt in writing or makes partial payment of the debt.

Legal proceedings are recommended after the amicable phase, if debtor is still operating and in good financial health, is wilfully resisting payment, disputing the claim for insignificant reasons, not honouring payment plans or not providing documentary evidence.

Type of proceedings

Arbitration:arbitration can be initiated if mentioned in the sales contract - otherwise the case can be sent to the National Company Law Tribunal (the NCLT) for registered companies.

Recovery Suits:recovery suits tend to become a long, drawn-out battle and are usually regarded as best avoided.

National Company Law Tribunal:the NCLT was created on June 1, 2016. It has jurisdiction over all aspects of company law concerning registered companies. Its advantages are that it can hear all company affairs in one centralised location and that it offers speedy processes (taking a maximum of 180 days). It also reduces the work load of the High Courts. The NCLT recently enacted a new Insolvency and Bankruptcy Code. Decisions of the NCLT may be appealed to the National Company Law Appellate Tribunal (NCLAT). The NCLAT acts as the appellate forum and hears all appeals from the NCLT. Appeals from the NCLAT are heard by the Supreme Court of India.

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Enforcement of a Legal Decision

A local judgment can be enforced either by the court that passed it, or by the court to which it is sent for execution (usually where the defendant resides or has property). Common methods of enforcement include delivery, attachment or sale of property, and appointing a receiver. Less common methods include arrest and detention in prison for a period not exceeding three months.

India is not party to any international conventions governing the recognition and enforcement of foreign judgments. However, the Indian government has entered into 11 reciprocal arrangements, and judgments from the courts of these reciprocating countries can be executed in India in the same way as local judgments. For judgments from non-reciprocating territories, a suit must be brought in India based on the foreign judgment before it can be enforced.

Insolvency Proceedings

The Insolvency and Bankruptcy Code, introduced in 2016, proposes two independent stages:

INSOLVENCY RESOLUTION PROCESS (IRP)

The IRP provides a collective mechanism for creditors to deal with distressed debtors. A financial creditor (for a financial debt), or an operational creditor (for an unpaid operational debt) can initiate an IRP against a debtor at the National Company Law Tribunal (NCLT). The Court appoints a Resolution professional to administer the IRP. The Resolution professional takes over the management of the corporate debtor and continues to operate its business. It identifies the financial creditors and holds a creditors committee. Operational creditors above a certain threshold are also allowed to attend meetings, but they do not have voting power. Each decision requires a 75% majority vote. The committee considers proposals for the revival of the debtor and must decide whether to proceed with a revival plan, or to liquidate, within 180 days.

LIQUIDATION

A debtor may be put into liquidation if a 75% majority of the creditors’ committee resolves to liquidate it during the IRP, if the committee does not approve a resolution plan within 180 days, or if the NCLT rejects the resolution plan submitted on technical grounds. Upon liquidation, secured creditors can choose to realise their securities and receive proceeds from the sale of the secured assets as a priority.

Under the current Insolvency and Bankruptcy Code, the highest priority is given to insolvency resolution process and liquidation costs. Thereafter, proceeds are then allocated to employee compensation and secured creditors, followed by unsecured and government dues.

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Last updated:April 2025