October-March growth is likely to be better than in H1, the Finance Ministry said in its Monthly Economic Review for November 2024, while adding that food price pressures are likely to decline gradually, supported by an optimistic farm sector outlook
The infrastructure sector is expected to gain traction, with cement, steel, and electricity industries benefiting from post-monsoon demand and government-led initiatives.
India’s Economic Outlook for FY25: Confidence Amidst Challenges
India's Finance Ministry has expressed confidence in the country's economic trajectory, projecting a robust growth rate of around 6.5% in real terms for FY25. The Ministry’s November economic review highlights a combination of resilient rural demand, strengthening urban consumption, and a rebound in capital expenditure as the pillars supporting this optimistic outlook.
Growth Trends and Projections
India’s GDP growth decelerated to a seven-quarter low of 5.4% in the July-September quarter of FY24. This slowdown was attributed to:
Softening public and private capital expenditure.
Global uncertainties affecting investment sentiment.
Concerns about excess capacity and potential dumping.
Despite these challenges, the Finance Ministry’s report suggests that the worst might be behind us. Key indicators signal a recovery in the coming quarters:
Capital Formation: The latter half of FY25 is expected to witness a resurgence in capital formation, driven by increased government capex.
Infrastructure Investment: Order books for infrastructure and capital goods have grown sharply in FY24 and the first half of FY25, pointing to a pent-up investment demand.
Consumption Revival: Rural demand remains resilient, while urban consumption has shown signs of strengthening in recent months.
Policy Insights: Capex as a Growth Engine
Public capital expenditure has emerged as a critical lever for economic recovery. The Ministry noted that the Union Government’s increased spending on infrastructure and development projects is likely to have a multiplier effect on private investment and job creation.
The report also highlighted the importance of maintaining momentum in both public and private sector investments to ensure sustained growth. While global headwinds and cautious private capex have posed challenges, the anticipated recovery in investment activity is expected to bolster overall economic performance.
Monetary Policy and Borrowing Costs
The Reserve Bank of India (RBI) has maintained the repo rate at 6.5% for the past 18 months, under the leadership of former governor Shaktikanta Das. However, the central bank recently reduced the cash reserve ratio (CRR) from 4.5% to 4% to enhance liquidity in the financial system.
This decision has sparked discussions among policymakers and economists about the need for lower borrowing costs to encourage lending and support growth. Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have also advocated for easing borrowing constraints to stimulate economic activity.
Looking Ahead
The economic review paints a cautiously optimistic picture for FY25. Key drivers like increased public spending, a rebound in private investment, and sustained consumption demand are expected to propel India’s growth forward. However, challenges such as global uncertainties and inflationary pressures will require prudent policymaking and coordinated efforts from all stakeholders.
With India poised to strengthen its economic foundations, the coming quarters will be crucial in translating these projections into tangible outcomes. The groundwork laid by rising capital formation and infrastructure investments offers a promising path toward sustained economic growth.
