India is expected to grow around 6.5 percent in fiscal 2024/25, closer to the lower end of its 6.5-7 percent projection, as global uncertainties pose a threat to domestic growth, the government said.

The outlook for growth from October to December looks bright, with rural demand remaining resilient and urban demand picking up in the first two months of the quarter, according to the finance ministry’s monthly economic report released on 26 December.

“India’s real GDP grew by 5.4% in Q2FY25 and 6% in H1FY25. The slowdown was mainly concentrated in some manufacturing sections On the demand side, private final consumption expenditure (PFCE) at constant prices (2011-2012) grew by 6 percent in the second quarter of the fiscal year 25, resulting in growth of 6.7 percent in the first half of fiscal year 25. Consumption remained strong, with its share of GDP (at current prices) rising from 60 percent in first half of fiscal year 24 to 61.2% in the first half of fiscal year 25,” the ministry said in its November 2024 Monthly Economic Review report.

India has maintained that its economy would grow at a global pace of 6.5-7% despite a challenging environment. Growth prospects are expected to be better from October to March than in the first six months of the fiscal year, he said.

“The combination of monetary policy and central bank macroprudential measures may have contributed to the slowdown in demand,” the report said.

inflation

Retail inflation eased to 5.5 percent in November 2024 from 6.2 percent in October 2024, driven by lower food and core inflation. Food inflation moderated to 9 percent in November from 10.9 percent in October, mainly driven by a drop in vegetable inflation, though remaining in double digits, the report added.

Also, government measures to prevent hoarding of important pulses and subsidized sale of pulses under the Bharat brand have been effective, with pulse inflation easing by 200 basis points to 5.4 percent in November from October. On the other hand, the inflation rate of “oils and fats” increased from 9.6% in October to 13.3% in November, as the global inflation of vegetable oils based on the FAO index is double digits, he added.

Inflation in the fuel and light group continued in the deflationary zone for the 15th consecutive month. Core inflation also eased slightly to 3.7 percent in November 2024.

Overall, headline inflation in FY25 (April-November) was lower at 4.9% compared to 5.5% in the corresponding period of the previous year. Underlying inflation stood at 3.4%, 1.4% lower than in the corresponding period last year. However, food inflation rose to 8.3% compared to 6.9% in FY24 (April-November), the government said.

Projection for H2FY25

There are good reasons to believe that the growth prospects in the second half of FY25 are better than in the first half. At the same time, the possibility that structural factors also contributed to the slowdown in the first half should not be ruled out, according to the report. The combination of monetary policy and the central bank’s macroprudential measures may have contributed to the slowdown in demand, he added.

On the demand side, rural demand remains resilient, as highlighted by the 23.2% and 9.8% growth in two- and three-wheeler sales and domestic tractor sales, respectively, between October and November 2024. Urban demand is recovering, with sales of passenger vehicles. registering a year-on-year growth of 13.4% between October and November 2024 and domestic air passenger traffic experienced strong growth. Accordingly, we expect the economy to grow by around 6.5 percent in real terms in FY25, the government said.

Looking ahead to FY26, new uncertainties have emerged. World trade growth looks more uncertain than before. High stock markets continue to be a big risk. The strength of the US dollar and a rethinking of the path of policy rates in the United States have put pressure on emerging market currencies, he added.