New Delhi: India's GDP growth, despite a positive revision for fiscal year (FY) 2024, will face a slowdown in FY25 due to intensifying global headwinds, according to a report by Axis Bank.
The report, released on Monday, forecast volatility in food inflation throughout FY25, despite a moderation in core inflation.
Titled 'India Economics Outlook 2024: India Resilient in a growth-challenged World,' the report has said that the Indian economy, while resilient, is not immune to the deceleration expected in the next fiscal year.
This projection comes against the backdrop of the Reserve Bank of India's recent revision of the growth forecast for FY24 to 7%, an increase from the previous 6.5%, buoyed by factors such as rising rural consumption and increasing capital expenditure.
The Indian economy notably outperformed expectations with a 7.6% growth in the September quarter, maintaining its position as the fastest-growing major economy.
However, the Axis Bank report cautioned about challenges ahead, noting that tight liquidity conditions, equivalent to a 25-30 basis points rate hike, might ease only when global risks subside. The report underscored the importance of fiscal discipline, infrastructure development, and capital expenditure in sustaining growth.
After rising to a 15-month high of 7.4% in July, led by an increase in food prices spurred by seasonal fluctuations, India's retail inflation fell to a four-month low of 4.87% in October.
"The moderation in services inflation, reflecting slack in the labour force, is evidence of this trend (reduction in core inflation). Fiscal discipline, building infrastructure, and a pick-up in capex also contribute over time…Core (inflation) is currently annualizing well below the 4% target, though global factors (like gold) and strength in housing rents can push it up," the Axis Bank report said.
In October, the International Monetary Fund revised India's economic growth forecast for FY24 to 6.3%, while other agencies like Morgan Stanley, Citi, and Goldman Sachs have raised their forecasts for India's GDP growth for the same period. Despite these positive domestic trends, net exports have been a drag on growth, and private consumption has been weak, with anomalies in measurement, noted the report.
The global economy's struggles with inflation, high interest rates, and slow growth contrast with India's robust performance.
Recently, S&P Global revised India's GDP growth projection for financial year 2024 to 6.4%, from 6%, on the back of strong domestic tailwinds.
However, it lowered growth estimates for financial year 2025 to 6.4% from 6.9% on the back of a likely slowdown in the second half of the year amid subdued global growth, a higher base, and a lagged impact of interest rate hikes effected by the Reserve Bank of India.
The Axis Bank report highlighted weakening global industrial production and subdued demand--except for the US real retail sales are running well below the pre-pandemic trend--setting a cautious tone for India's economic trajectory in the face of global challenges.
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