December 27, 2024
Rural demand remains robust, supported by strong two-wheeler and tractor sales, while urban demand shows signs of recovery
Inflation eased in November 2024, driven by lower food prices and declining crude oil costs, though risks from global edible oil prices persist
Industrial activity is expected to gain momentum, supported by favourable rabi sowing conditions and higher Minimum Support Prices
Uncertainty in global trade, a stronger US dollar, and elevated stock markets present risks to sustained growth in FY26
India’s economy is expected to grow at 6.5% in the financial year 2024–25 (FY25), closer to the lower end of earlier projections, as global uncertainties weigh on manufacturing and consumption. This marks a decline from the previous fiscal year’s 8.2% growth, with the economy slowing to 5.4% in the July-September quarter, its lowest in seven quarters.
According to the Finance Ministry’s November economic report, rural demand has shown resilience, with robust sales of two-wheelers and tractors in October and November. Urban demand has also increased, as reflected in a surge in air passenger traffic. Industrial activity is expected to strengthen, supported by a favourable rabi sowing season driven by higher Minimum Support Prices, ample fertiliser availability, and sufficient reservoir levels.
Inflationary pressures eased in November 2024, with lower food prices and declining international crude oil costs providing relief. However, global edible oil prices and a stronger US dollar remain risks. The Reserve Bank of India (RBI) has forecast CPI inflation to be at 4.8% for FY25, with moderation expected in the second half of the fiscal year.
The Finance Ministry acknowledged that the RBI’s restrictive monetary policies, which have kept interest rates unchanged for nearly two years, may have contributed to the demand slowdown. Despite calls for rate cuts, the RBI has maintained its stance, focusing on keeping inflation near its 4% target.
The report highlighted new risks for FY26, including potential trade disruptions and a stronger US dollar, which could pressure emerging market currencies. Additionally, policies in advanced economies and elevated stock markets may constrain economic stability in emerging markets like India.
Despite these challenges, the Finance Ministry remains optimistic about India’s growth prospects in FY26 and beyond, citing strong domestic economic fundamentals. Sustaining growth will require a collaborative commitment from all stakeholders to navigate uncertainties and bolster economic momentum.
Source: Mint