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Informist, Thursday, Dec. 26, 2024

 

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--Fin min: Expect economy to grow around 6.5% in real terms in FY25 
--Fin min: Signs of early rebound in capital formation growth in H2 FY25 
--CONTEXT: Comments from fin min's Nov Monthly Economic Review report 
--Fin min: Pent-up investment impulse to play out in quarters ahead 
--Fin min: Promising rabi harvest to help alleviate food inflation pressures 
--Fin min: India's growth outlook in FY26 for coming years is bright 
--Fin min: Believe Oct-Mar growth outlook will be better than Apr-Sept 
--Fin min: Structural factors may have contributed to H1 growth slowdown

 

NEW DELHI – After GDP growth disappointed in Jul-Sept, falling to a seven-quarter low of 5.4%, the finance ministry now expects the Indian economy to grow around 6.5% in the current financial year ending March. The ministry had previously maintained that the economy will grow in a range of 6.5-7.0% in FY25, as projected in the Economic Survey.

 

GDP growth slowed down in Jul-Sept because of a moderation in investment growth, which the finance ministry said, "can be attributed to a softening of public capex (capital expenditure) and private capex levels being affected by global uncertainties, excess capacity, and fears of dumping". "There are signs of capital formation growth rebounding early in H2 of FY25 (Oct-Mar), with Union Government capex picking up pace," the ministry said in the Monthly Economic Review for November. 

 

The finance ministry follows private forecasters, multilateral organisations, and the Reserve Bank of India in lowering FY25 growth expectations after the Jul-Sept growth shocker. The Indian central bank earlier this month lowered its FY25 GDP growth forecast by 60 basis points to 6.6% from 7.2%.

 

The ministry believes that the outlook for Oct-Dec is bright, as reflected in high-frequency indicators in October and November. An increase in minimum support price for rabi crops, high reservoir levels, and adequate fertiliser availability bodes well for rabi sowing, the ministry said. 

 

Industrial activity is likely to gain traction with October and November Purchasing Managers' Index staying well in the expansionary zone. The conclusion of the monsoon season and the expected increase in public capital expenditure will likely support the cement, iron, steel, and electricity sectors, the ministry said. "The order books of infrastructure and capital goods grew sharply in FY24 and H1 of FY25 (Apr-Sept), indicating a pent-up investment impulse that will play out in the quarters ahead," the ministry said.

 

The RBI staff Tuesday said the growth momentum is seen reviving in Oct-Dec from the slump in the previous quarter, the outlook for Jan-Mar remains bleak. The central bank's internal models predict that GDP growth may only be 6.5% in Jan-Mar, well below the RBI's official forecast of 7.2%.

 

The finance ministry report also noted the build up of global risks. "In recent days, reconsidering the path of policy rates in the United States by financial markets has caused long-term sovereign borrowing costs for advanced countries to increase, and emerging market currencies have weakened against the US dollar," the report said, adding that this will weigh on the minds of monetary policymakers in emerging economies, including India.

 

India's growth outlook in FY26 for the coming years is bright when viewed through the lens of the domestic economic fundamentals, but is also subject to fresh uncertainties, the ministry said.

 

EASING INFLATION

 

Inflationary pressures softened in November with CPI inflation easing to 5.48%, driven by lower food and core inflation. Vegetable price pressures have moderated, thanks to an influx of fresh produce in the market, the ministry said. 

 

"Healthy progress in rabi sowing indicates a promising harvest that will help alleviate food inflation pressures. The downward trend in international crude oil prices is a positive factor for domestic inflation, while elevated global edible oil prices remain a risk," the report said. 

 

The RBI projects CPI inflation to average 4.8% in FY25. The farm sector outlook is optimistic, generating hope that food price pressures will decline gradually, the ministry said.  End

 

Reported by Shubham Rana

Edited by Deepshikha Bhardwaj

 

 

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