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India’s economy may well end up growing by about 8% this fiscal, outstripping the 7.6% real GDP growth projected by the National Statistical Office (NSO), the Finance Ministry signalled on Friday, citing the continuing momentum in economic activity in the ongoing final quarter of 2023-24.
Despite risks such as “hardening crude oil prices” and “global supply chain bottlenecks to trade”, the Ministry asserted the outlook for India’s economy in 2024-25 was bright with this fiscal closing on a positive note of ‘strong growth, stable inflation and external account and progressive employment outlook’.
The Ministry, in its monthly economic review for February, said that retail inflation had extended its stay inside the Reserve Bank of India’s tolerance range of 2% to 6% for a sixth consecutive month with core (excluding food and fuel) inflation continuing to ease.
“Despite price volatility in certain specific food items, headline inflation stayed below 6% throughout this year except in July and August,” the Ministry said, adding that spices and cereals had recorded the lowest inflation since August 2022 last month. For the coming months, the inflation outlook was positive, it emphasised, citing the pick-up in the sowing of summer crops, which was likely to help reduce food prices.
Arguing that robust investment activity was “clearly underway”, the Ministry said that private consumption demand was strengthening as seen in indicators like “burgeoning air passenger traffic and sale of passenger vehicles, digital payments, improved consumer confidence and expectations of a normal monsoon”. The review, however, appeared to acknowledge that private consumption demand was backed by ‘resilient urban demand’ while rural demand was weak.
“The recovery in rural consumption demand is expected to be strengthened by the forecast of a normal monsoon in 2024-25,” it said. Moreover, it underlined that an increase in domestic household savings would be necessary to finance private sector capital formation in the economy.
“On the external front, the narrowing merchandise trade deficit and the rising net services receipts are expected to result in an improvement in the current account balance in 2023-24. However, in 2024-25, the current account deficit will bear watching,” it averred, hinting at the risks to goods exports and possible oil price surges due to the Red Sea crisis and the drought in the Panama Canal.
Citing the recent growth projections of 7.8-8% for 2023-24 from certain rating agencies and banks’ economic researchers, the Ministry said this inclination stemmed from the NSO’s growth estimate for the year, which implied a 5.9% pace in the fourth quarter. This “is likely to be an understatement given the continuing momentum of the economy,” the Ministry reckoned.
