In the November monthly economic report, the growth forecast for the fiscal year has declined marginally from 6.5% to 7% to 6.5% GDP growth FY25. In the July Economic Survey, the government forecasted India’s GDP growth rate to be higher for FY25 which is up to 7% but now, the government can only see it growing up to 6.5%. Though the FY25 growth may seem to be a little slower than the earlier expectations, the government said that the domestic economy is in a good state. Let’s look at the insights of the report to understand better.
Demand and Consumption Growth
The report suggests that the demand in rural areas is stable which is depicted by the sale of two-wheelers and three-wheelers, as well as tractors. In urban areas, the demand for passenger vehicles is witnessing a significant rise. In addition, the air passenger traffic is growing in the urban areas.
All these factors, from resilient rural demand to growing urban consumption point to a brighter third quarter. The agricultural sector has also boomed which can bring down the food prices and the inflationary pressure gradually.
Half-yearly Economic Analysis
The first half of FY25 was a little sluggish and there were good reasons for the same. Due to geopolitical turmoil, uncertainties were there in the market, which led to softer public and private capex. This in turn dragged the investment growth down and slowed down the entire market. In addition, there were structural factors at play, which included monetary policy stances, macro-prudential measures by RBI, and others that slowed H1 down.
However, with the brighter third quarter outlook, and the recent CRR cut, it can be expected that the H2 will be better with higher credit growth, new investments, and hiring can boom as well which in turn can help in boosting consumption.
FY26 Outlook
The government is positive about the domestic factors playing for FY26 growth prospects. The economic fundamentals of the country are in place and that is boosting the domestic demand as well.
However, global uncertainties such as slower global trade growth, and geopolitical events can drag the economy down. Moreover, the rate cuts by the US are also pressuring Indian policymakers to cut rates, but due to inflationary pressure still not being under control, they are not able to cut rates. This again slows down the economy. So, it will be interesting to see how FY26 turns out in real.
Source: CNBC TV18
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