India is expected to grow at around 6.5 percent in the fiscal year 2024/25, closer to the lower-end of its 6.5-7 percent projection, as global uncertainties pose a threat to domestic growth, the government said.
Growth outlook for October to December appears bright, with rural demand remaining resilient and urban demand picking up in the first two months of the quarter, according to the finance ministry’s monthly economic report released on December 26.
“India’s real GDP grew 5.4 percent during Q2 of FY25 and 6 percent for H1 of FY25. The slowdown was mainly concentrated in some manufacturing sections compared to the previous quarter. On the demand side, private final consumption expenditure (PFCE) at constant (2011-12) prices grew by 6 per cent in Q2 of FY25, resulting in 6.7 per cent growth in H1 of FY25. Consumption remained strong, with its share in GDP (at current prices) rising from 60 per cent in H1 of FY24 to 61.2 per cent in H1 of FY25,” the ministry said in its Monthly Economic Review November 2024 report.
India has maintained its economy would grow at a world-beating pace of 6.5-7 percent despite a challenging environment. The growth outlook is expected to be better in October to March than in the first six months of the financial year, it said.
“The combination of monetary policy stance and macroprudential measures by the central bank may have contributed to the demand slowdown,” the report said.
Inflation
Retail inflation softened to 5.5 percent in November 2024 from 6.2 percent in October 2024, propelled by lower food and core inflation. Food inflation moderated to 9 percent in November from 10.9 percent in October, majorly driven by a fall in vegetable inflation, though it remains in double digits, the report added.
Further, government measures to prevent the hoarding of major pulses and subsidised selling of pulses under the Bharat brand have been effective, with pulses inflation easing by 200 basis points to 5.4 percent in November from October. On the other hand, the inflation rate in ‘oils & fats’ increased from 9.6 percent in October to 13.3 percent in November as global inflation in vegetable oils based on the FAO index is in double digits, it added.
Inflation in the fuel & light group continued in the deflationary zone for the 15th consecutive month. Core inflation also eased slightly to 3.7 percent in November 2024.
Overall, headline inflation in FY25 (Apr-Nov) was lower at 4.9 percent compared to 5.5 percent in the corresponding period of the previous year. Core inflation stood at 3.4 percent, 1.4 percent lower than last year’s corresponding period. However, food inflation increased to 8.3 percent compared to 6.9 percent in FY24 (April-Nov), the government said.
Projection for H2FY25
There are good reasons to believe that the outlook for growth in H2 of FY25 is better than that of H1. At the same time, the possibility that structural factors may also have contributed to the slowdown in H1 should not be ruled out, the report said. The combination of monetary policy stance and macroprudential measures by the central bank may have contributed to the demand slowdown, it added.
On the demand side, rural demand remains resilient, as highlighted by the 23.2 percent and 9.8 percent growth in two & three-wheeler sales and domestic tractor sales, respectively, in October-November 2024. Urban demand is picking up, with passenger vehicle sales registering YoY growth of 13.4 percent in October-November 2024 and domestic air passenger traffic witnessing robust growth. Consequently, we expect the economy to grow at around 6.5 percent in real terms in FY25, the government said.
Looking into FY26, newer uncertainties have emerged. Global trade growth is looking more uncertain than before. Elevated stock markets continue to pose a big risk. The strength of the US dollar and a rethink on the path of policy rates in the United States have put emerging market currencies under pressure, it added.