Despite geo-political uncertainties and high inflation globally, the Indian economy fared much better this year due to strong market fundamentals and resilient growth, with projections to see 6.5 percent real GDP growth in the current as well as next fiscal
New Delhi: As the world economies faltered this year amid geo-political turmoil, India’s growth story remained intact as inflation was on the declining path and the balance between inflation and growth was well poised. The country’s external sector was stable and foreign exchange reserves scaled a new peak this year.
On its way to become the world’s third largest economy, India is projected to witness 6.5 per cent real GDP growth in the current and next fiscal (FY25 and FY26), according to the latest 'EY Economy Watch December 2024’. It projected that combining the real GDP growth of first two quarters of FY25 at 6.7 per cent and 5.4 per cent, respectively, with RBI's revised growth estimates for 3Q and 4Q FY25 at 6.8 per cent and 7.2 per cent, respectively, "the annual FY25 real GDP growth may be estimated at 6.6 per cent".
“However, if the turnaround in GoI's investment expenditure remains subdued, Q3 growth may be 6.5 percent or less," the report mentioned. The real GDP growth eased to 5.4 percent in the July-September quarter (Q2 FY25), compared to 6.7 percent in the preceding quarter.
Inflation under control
Headline manufacturing PMI witnessed a softer expansion of 56.5 in November compared to 57.5 in October. Services PMI, however, remained nearly stable at 58.4 in November 2024, close to its level of 58.5 in October 2024, on account of strong international demand and improving business confidence.
As per the data released by the Federation of Automobile Dealers Association, retail sales of motor vehicles continued to show a double-digit growth of 11.2 per cent in November. In particular, retail sales of two wheelers and tractors showed robust growth rates of 15.8 percent and 29.9 percent, respectively, in November 2024, according to the EY report.
CPI inflation eased to 5.5 per cent in November from 6.2 per cent in October as vegetable prices eased, whereas core CPI inflation remained steady at 3.7 per cent for the second successive month. WPI inflation also moderated to 1.9 per cent in November from 2.4 per cent in October.
According to DK Srivastava, Chief Policy Advisor, EY India, in the medium-term, India's real GDP growth prospects can be kept at 6.5 per cent per year, provided the government accelerates its capital expenditure growth in the remaining part of the current fiscal year and comes up with a medium-term investment pipeline "with participation from the GoI and state governments and both their respective public sector entities, and the private corporate sector".
According to Jeffries, the improvement in India's economic growth after the slowdown in the July-September quarter is visible as movement indicators like fuel consumption, vehicles tolled and air traffic have strengthened.
The Jefferies’ economy tracker composite indicator shows growth pick-up sustaining in November with the indicator up 6.4 per cent year-on-year, the second fastest growth pace in 13 months. "The festive season created month-on-month volatility due to Diwali timings," it said.
The combined October-November activity growth at 6.5 per cent is a "substantial improvement" over recent months, with growth fastest in five quarters, the Jeffries report states. “We believe that the revival in government capex and liquidity rise on relaxed RBI policies should improve GDP growth in the quarters ahead," the brokerage said.
Broad-based indicators mostly improved. During November, a significant improvement was seen in diesel consumption which saw the highest jump in 13 months, on a year-on-year basis, the report stated.
“Monetary tightening should be behind us," analysts at Jefferies said in the note. The RBI's stance on liquidity also reflected well in overnight liquidity being in surplus for the past three months. We believe monetary conditions will continue to ease in early 2025," Jeffries said.
India’s retail inflation based on the Consumer Price Index (CPI) was expected to ease to 5.5 per cent in November due to a decline in food prices, according to a Morgan Stanley report.
No slowdown in manufacturing sector
Finance Minister Nirmala Sitharaman stated in Parliament that the lower-than-expected GDP growth in the second quarter of the current financial year is a "temporary blip" and growth would pick up in the coming months.
The finance minister pointed out that India has experienced steady and sustained growth, with an average GDP growth rate of 8.3 per cent over the past three years and continues to be the fastest-growing major economy. “At 5.4 per cent, the Q2 growth rate is slower than expected. Q2 of this financial year has been a challenging quarter for India and most other economies of the world,” she said.
According to Finance Minister Nirmala Sitharaman, there is no broad-based slowdown in the manufacturing sector. (Photo courtesy: X@FinMinIndia)
She also pointed out that there is no broad-based slowdown in the manufacturing sector. “A generalised slowdown in manufacturing is not expected, as it is restricted to a few segments. Out of 23 manufacturing sectors in the Index of Industrial Production, about half of them remain strong even now,” the Finance Minister further stated.
S&P Global Ratings also projected 6.8 per cent growth for the Indian economy in FY25, followed by 6.9 per cent growth in FY26, on the back of strong urban consumption, steady service sector growth, and ongoing investment in infrastructure.
According to outgoing RBI Governor Shaktikanta Das, India’s growth story was intact as “going forward, high-frequency indicators available so far suggest that the slowdown in domestic economic activity bottomed out in the second quarter of this year and it has since recovered aided by strong festive demand and pickup in rural activities.”
The central bank, in its recent Monetary Policy Committee (MPC) meeting, announced a cash reserve ratio (CRR) cut of 50 bps which will add over Rs 1.16 lakh crore of liquidity into the banking system and bring down market interest rates.
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India aims to cut fiscal deficit to 4.5% of GDP New Delhi: The government will continue its focus on improving quality spending, strengthening the social security net and reducing the fiscal deficit to 4.5 per cent of the GDP in the financial year 2025-2026, according to a Finance Ministry statement. Finance Minister Nirmala Sitharaman is expected to continue with the government’s position of increasing expenditure on big-ticket infrastructure projects and social welfare schemes for the poor while keeping the fiscal deficit in check when she presents the Union Budget for 2025-26 in Parliament on February 1. The government is committed to pursuing the glide path of fiscal consolidation which aims to lower the fiscal deficit to 4.5 per cent of GDP by financial year 2025-26, according to Finance Ministry statements on the half-yearly review of the trends in receipts and expenditure. |
