India’s FY25 growth outlook looks bright, core inflation on downtrend, says FinMin: 5 key highlights
- ''Strong growth accompanied by stable inflation and external account and progressive employment outlook help the Indian economy close the current financial year on a positive note,'' said the finance ministry in its report.
India's economic growth outlook for the upcoming fiscal FY25 -- starting from April 1, looks bright, thanks to strong growth and robust fundamentals, despite headwinds such as hardening crude oil prices and the global supply chain bottlenecks, according to the finance ministry's monthly economic review for February 2024.
India’s economic growth surged to a six-quarter high in Q3FY24, exceeding eight per cent for the third consecutive time. Retail inflation remained stable and within the target range for the sixth consecutive month and core inflation is declining with domestic growth and benign global commodity prices, according to the government's economic review.
''Strong growth accompanied by stable inflation and external account and progressive employment outlook help the Indian economy close the current financial year on a positive note,'' said the finance ministry in its report.
The report also highlighted that robust investment activity also contributed to growth and strong aggregate demand stirred manufacturing and construction activities. Here are five key highlights from the Monthly Economic Review:
FinMin's February Monthly Economic Review: Here are 5 key highlights
1.Growth backed by government capex and private investment
The government’s effective capex is expected to be 4.6 per cent of the gross domestic product (GDP) in FY25, as per the interim budget, which is a substantial 200 basis point increase from 2.6 per cent of GDP in FY20. ‘’With the continued impetus to capex in the last few years, the crowding-in is evident from the increasing investment rate of the private corporate sector,'' said the report.
Driven by the government’s thrust on capex which has continued to crowd in private investment, the gross fixed capital formation (GFCF) at constant prices registered a growth of 10.2 per cent in FY24 and 10.6 per cent in Q3 of FY24. There has been a broad-based pick-up in investment, as reflected in the rising share of GFCF, which increased to 31.3 per cent of GDP in FY24.
2.Private consumption led by urban demand, rural recovery likely in FY25
The steady consumption demand is backed by resilient urban demand conditions. The recovery in rural consumption demand is expected to be strengthened by the forecast of a normal monsoon in FY25.
Also Read: Govt's emphasis on capex to sustain high growth highlight of interim budget: FM Sitharaman
Strengthening urban demand was led by rising passenger vehicle sales, increased housing sales, higher domestic air passenger traffic, increased digital payments and improved consumer confidence. The volume of UPI transactions also witnessed a 54.4 per cent YoY increase in Q3 FY24, which can be attributed to convenience and better financial flexibility, according to the report.
3.India’s capital markets stand out amidst difficulties
Despite geopolitical risks, rising interest rates, and volatile commodity prices, the Indian capital markets have remained one of the best performing among emerging markets in FY24.
In the first eleven months of FY24, capital worth ₹98,112 crore (equity + debt) has been raised by the corporates from the primary market through public and rights issuances, higher than the previous fiscal.
As per the NSDL and CDSL data, the number of demat accounts in India opened in February 2024 soared to over 43.5 lakh, 38.6 per cent higher compared to the corresponding period of the previous year. The total demat accounts tally now stands at 14.8 crore, marking a 31.7 per cent increase from a year ago.
The assets under management of mutual funds were 38.2 per cent higher YoY in February 2024. In the first eleven months of FY24, mutual funds witnessed net inflows of ₹5.1 lakh crore, compared to net inflows of ₹0.95 lakh crore in the same period of the previous year.
4.Red Sea crisis-led high oil prices poses upside risk on inflation, GDP growth
India is dependent on imports to meet over 85 per cent of its crude oil requirements and around 50 per cent of its natural gas requirements. Asian economies such as China, Japan, India, and South Korea are among the largest net oil importers globally, said the report.
The ongoing crisis in the Red Sea shipping route is resulting in higher food prices, upside in crude oil rates, and also increasing freight costs. ‘’A rise in oil prices may pose upside risks to inflation and, consequently, to growth,'' said the finance ministry in the report. Due to this, India may face a sectoral impact on agriculture, textiles, and petroleum products.
In order to address these challenges, there may be a need to diversify trade routes and transportation options, which would increase transit costs and affect the price competitiveness of Indian merchandise exports, added the report.
5.Geopolitical headwinds impact India's FDI
Mirroring the slowdown in foreign direct investments (FDI) flows to developing countries, gross FDI inflows to India also dipped in the period April 2023- January 2024. During these ten months, gross FDI inflows were USD 59.5 billion compared to $61.7 billion in the same period last year.
In net terms, the comparable figures were $25.5 billion compared to $36.8 billion. Economic uncertainty and higher interest rates impacted global investments. ‘’A modest increase in global FDI flows is likely in 2024. A decline in inflation and borrowing costs in major markets may stabilise financing conditions for international investment deals,'' said the report.
‘’However, there are significant risks, including geopolitical risks, high debt levels accumulated in many countries, and concerns about further global economic fracturing,'' the report added.
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Business NewsEconomyIndia’s FY25 growth outlook looks bright, core inflation on downtrend, says FinMin: 5 key highlights
First Published:22 Mar 2024, 05:19 PM IST
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