As global uncertainties threaten domestic growth, India expects growth of around 6.5 percent in fiscal 2024/25, near the lower end of its 6.5-7 percent projection, the government said.
According to the Finance Ministry's monthly economic report released on December 26, the growth outlook from October to December looks bright, with rural demand remaining resilient and urban demand picking up in the first two months of the quarter.
“India's real GDP grew by 5.4 percent in Q2 of FY25 and 6 percent for H1 of FY25. The slowdown was mainly concentrated in some manufacturing sectors compared to the previous quarter. On the demand side, personal final consumption expenditure (PFCE) at constant (2011-12) prices grew by 6 per cent in Q2 of FY25, as a result of 6.7 per cent in H1 of FY25. Consumption remained strong with its share of GDP (at current prices) rising from 60 percent in H1 of FY24 to 61.2 percent in H1 of FY25.
Despite the challenging environment, India will grow its economy at a rate that outpaces the world at 6.5-7 percent. It said the growth outlook for October to March is expected to be better than the first six months of the fiscal year.
“A combination of the central bank's monetary policy stance and macroprudential measures may have contributed to the slowdown in demand,” the report said.
Inflation
Retail inflation softened to 5.5 percent in November 2024 from 6.2 percent in October 2024 due to lower food and core inflation. Food inflation moderated to 9 per cent in November from 10.9 per cent in October, although it remained in double digits mainly due to a drop in vegetable inflation, the report added.
Further, the government's measures to prevent hoarding of staple grains and sale of subsidized grains under the Bharat brand have been effective, with grain inflation easing by 200 basis points to 5.4 percent in November from October. On the other hand, 'oils and fats' inflation increased to 13.3 per cent in November from 9.6 per cent in October as global inflation of vegetable oils based on the FAO index remained in double digits.
Fuel and light category inflation remained in the deflation zone for the 15th consecutive month. Core inflation also eased marginally to 3.7 percent in November 2024.
Overall, core inflation in FY25 (April-Nov) eased at 4.9 percent as against 5.5 percent in the corresponding period of the previous year. Core inflation was 3.4 percent, down 1.4 percent from the corresponding period last year. However, food inflation rose to 8.3 percent as against 6.9 percent in FY24 (April-November), the government said.
Projection for H2FY25
There are good reasons to believe that the outlook for growth in H2 of FY25 is better than in H1. At the same time, the possibility that structural factors have also contributed to the slowdown in H1 should not be ruled out, the report said. A combination of the central bank's monetary policy stance and macroprudential measures may have contributed to the slowdown in demand, it added.
On the demand side, rural demand remains resilient, with 23.2 percent and 9.8 percent growth in two- and three-wheeler sales and domestic tractor sales, respectively, during October-November 2024. Urban demand is increasing along with passenger vehicle sales. In October-November 2024, domestic air passenger traffic witnessed strong growth and recorded annual growth of 13.4 percent. As a result, the government expects the economy to grow by around 6.5 percent in real terms in FY25.
Looking ahead to FY26, new uncertainties have emerged. Global trade growth appears more uncertain than ever. Stock markets that have risen continue to be a big risk. It added that the strength of the US dollar and a rethink on the path of US policy rates have put emerging market currencies under pressure.