Movements in high-frequency indicators fit well with 6.5-7% GDP growth projection: FinMin

The Ministry of Finance, in its monthly economic review bulletin for August 2024, says the GDP growth of 6.7% in Q1FY25 and the movements in high-frequency indicators till August fit well with the real GDP growth projection of 6.5-7% for FY25 provided by the Economic Survey 2023-24.

“The recent developments analysed above show strong foundations of macroeconomic stability in India with steady growth, investment, employment and inflation trends, a strong and stable financial sector, as well as, a resilient external account including comfortable foreign exchange reserve position,” the monthly report says.

However, the report flags the challenge of navigating the continuing uncertainty in global economic prospects. “We will likely encounter a cycle of policy rate cuts globally, amid fears of a recession in advanced economies and continuing geopolitical conflicts.”

For the remaining part of the financial year, the finance ministry expects that “public expenditure will pick up”, which is expected to provide added growth and investment impetus.

“In the farm sector, higher kharif acreage is already visible,” it says, adding that adequately replenished reservoir levels will potentially give a fillip to the upcoming Rabi crops as well.

Although the skewed spatial distribution of rain may have an impact on farm output in a few regions, the FinMin expects that in the absence of any serious adverse climate shocks, rural incomes and “demand should get stronger, and food inflation will be milder”.

The ministry highlights “incipient signs of strains” in certain sectors. “For instance, the automobile dealers’ body, FADA, has pointed to moderating sales of passenger vehicles and a build-up of inventory. Data from Nielsen IQ indicated that the growth of fast-moving consumer goods sales in urban areas slowed in Q1 FY25. While these may turn out to be transient with the onset of the festival season, they warrant monitoring. Further, capital spending by Indian states has declined in the current financial year. Stock markets around the world are booming, reinforced by recent policy announcements in a few countries. Consequently, the risk of an eventual correction has risen.”

In the event of these risks, the spillover effect may be felt globally, says the ministry, adding that amid these concerns, low oil prices are a “bright spot” for the economy.

A majority of global financial agencies have conveyed a positive commentary on the Indian economy. Moody's Analytics upgraded India's gross domestic product (GDP) forecast for the calendar year 2024 to 7.1%, up from 6.8% in its June 2024 update for Asia-Pacific. The research firm of Moody's Corporations retained its economic growth forecast for CY25 at 6.5%. ADB also said India’s GDP is projected to grow by 7% for the financial year 2024-25 (ending March 31, 2025) and by an additional 7.2% for FY2025-26. The World Bank earlier this month said the Indian economy would grow at 7% in FY25, which was a revision from its previous estimate of 6.6%. The International Monetary Fund (IMF) in July upgraded India's GDP forecast by 0.2 basis points to 7% for 2024-25.