India's central bank has appointed a new governor. Three experts share their strategies for leading the bank.

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The big story

Last year, thousands of Indians gathered at Delhi's Red Fort to hear Prime Minister Narendra Modi's speech on India's 75th Republic Day.

By 2047, India will be a developed nation, as per Viksit Bharat 2047's promise.

Over the past 10 years, the concept of a "developed India" has been frequently proposed by Prime Minister Modi.

In January, India's growth was surpassing other major economies, its stock market had surpassed Hong Kong's to become the fourth largest in the world, and numerous tech unicorns were on the verge of going public.

Concerns about high inflation, declining household spending, slow job creation, and insufficient private investment have intensified among investors and economists twelve months on. The recent miss in India's latest GDP figure for the second quarter has only added to the worry.

The government's decision to replace RBI Governor Shaktikanta Das with Sanjay Malhotra seems to be a deliberate and subtle approach to addressing India's economic challenges.

Das was previously the revenue secretary in the Ministry of Finance, and his term was expected to be extended, but Malhotra was appointed instead.

According to Shilan Shah, deputy chief EM economist at Capital Economics, Malhotra's leadership is expected to bring a "new direction for the RBI," which includes rate cuts as early as February 2025, analysts say.

The RBI's benchmark interest rate has remained at 6.5% since Das assumed leadership in late 2018.

The RBI stated in its November report that high inflation is negatively impacting urban consumption demand, corporate earnings, and capital expenditure, and if not controlled, it will harm economic growth prospects.

The central bank has revised its forecast for GDP growth in fiscal year 2025, ending in March, from 7.2% to 6.6% in its latest monetary policy meeting.

In his first public address, the new governor remained silent on the India growth versus inflation dilemma. Nevertheless, he emphasized the significance of stability, trust, and growth in shaping the central bank's decision-making process.

The 26th RBI governor stated in a live press conference on Wednesday that it may not be suitable to begin with bouncers, googlies, and yorkers on the first day of cricket.

"As we approach the "age of elixir" and aim to achieve the vision of Viksit Bharat by 2047, our economy still requires development. It is our responsibility to ensure that the growth this country has continues."

Three market watchers were asked by CNBC's Inside India what they expect from Malhotra's execution of his role in 2025 and what decisions they would make if they were in the governor's chair.

A 'tricky spot'

The RBI is currently facing a challenging position, according to economist Shumita Deveshwar.

The TS Lombard chief economist stated that the central bank is facing a challenge due to the potential impact of high food prices on broader inflation, but has limited control through monetary policy.

Another concern is India's "weaker than anticipated growth rate," she stated.

The "middle ground" for the RBI to balance India's growth-inflation challenge is to cut its cash reserve ratio (CRR) and increase liquidity, according to Deveshwar.

The CRR is the minimum amount of deposits that commercial banks must keep as reserves with the central bank. In its recent policy meeting, the RBI reduced the CRR by 50 basis points to 4.5%, in an effort to increase liquidity, credit flows, and economic growth.

Deveshwar believes that the central bank should begin reducing interest rates by February in order to stimulate India's growth through lower financing costs, which will encourage increased investments and borrowing by consumers and businesses.

'Turning around a bend'

As governor, Vivek Subramanayam, the founder and CEO of investment bank and asset manager Technology Holdings, would adopt a "slow and deliberate reduction of rates."

Subramanayam stated that while there is potential for a few cuts to result in a total reduction of up to 200 basis points, it should be done in a calibrated and gradual manner to avoid disrupting both inflation and currency depreciation.

He emphasized the importance of managing inflation and depreciation rather than focusing solely on maximizing growth.

He predicts that India's economy will gradually re-accelerate by 2025, with the help of loosened monetary and fiscal policies and increased investments in growth.

'Still a compounding machine'

Malcolm Dorson from Global X ETFs also shares Subramanayam's positive outlook on India.

The senior portfolio manager stated that India is still a compounding machine and the recent pullback presents a unique opportunity to step in with conviction.

He expects the RBI to start reducing rates once they determine inflation is under control.

Dorson, who manages the Global X Active India ETF, stated that the central bank's decision to cut the CRR rate aims to improve liquidity and suggests that rate cuts are imminent. However, as investors, we are not seeking significant changes. Global X's parent, Mirae Asset, is one of the largest foreign asset managers in India.

Despite any changes in leadership at India's central bank, the senior portfolio manager maintains that the South Asian powerhouse remains an attractive investment opportunity.

He emphasized the lackluster stimulus measures in China and the challenges posed by U.S. President-elect Donald Trump's election as "a boost to the India narrative."

Dorson anticipates India's average growth rate to be 6% annually over the next five years, based on a "meaningful increase" in government spending over the next six months.

If the government fails to meet the budget, officials can still claim "fiscal consolidation," which the market will appreciate. This situation seems like a "win-win" for India's economy, according to Dorson.

Need to know

India's inflation rate decreases from a 14-year high. In November, the country's headline inflation was recorded at 5.48%, down from the 6.21% recorded in the previous month. This figure is also lower than the 5.53% predicted by economists surveyed by Reuters. The decrease in inflation occurred after the Reserve Bank of India (RBI) kept interest rates at 6.5% during its monetary policy meeting last week.

The next decade will see a significant increase in Indian outbound travel, according to Hilton's Asia-Pacific president, Lan Watts. Despite spending $34.2 billion on outbound travel in 2023, Watts considers the current level "miniscule" compared to what's to come. He predicts that India outbound will be the story of the next decade.

What happened in the markets?

This week, the Indian stock index has decreased by 0.5%, bringing the current value to 24,548.7 points. Despite this, the index has still increased by 13% in the year.

The Indian government bond yield has remained unchanged at 6.73% compared to the previous week.

This week on Biz Focus Hub, BNP Paribas's Kunal Vora stated that domestic investors are managing the volatility resulting from recent news, and that the stock market is displaying a high level of resilience, despite their current cautious approach to investing in Indian stocks.

The slowdown in India's economic growth is expected to be temporary as the central government plans to increase spending on infrastructure.

What's happening next week?

December 13: India wholesale prices inflation, U.K. GDP

December 16: Eurozone, U.K., India PMIs

December 17: U.K. unemployment

December 18: U.K. inflation, U.S. interest rate

December 19: U.K. interest rate, Japan interest rate, Sweden interest rate