India’s economy is projected to reach approximately 6.5% in fiscal year 2024/25, aligning with the lower end of its earlier 6.5%-7% forecast, as global economic uncertainties continue to present challenges. According to the Finance Ministry’s Monthly Economic Report for November, India remains on track to sustain its position as one of the world’s fastest-growing economies, despite external headwinds.
Rural Resilience and Urban Recovery Driving Growth
The economic outlook for the October to December quarter looks promising, with rural demand showing resilience and urban demand witnessing an uptick in the first two months of the quarter. This positive trend follows a slowdown in growth during the July-September quarter, primarily driven by weaker expansion in manufacturing and consumption sectors.
While rural markets continue to show steady growth, urban areas are slowly recovering, aided by improving consumer sentiment and increased spending in sectors like retail and services.
Impact of Monetary Policy on Demand
The report acknowledged that the Reserve Bank of India’s (RBI) monetary policy stance and macroprudential measures may have played a role in slowing demand growth. The central bank has maintained a consistent interest rate policy, keeping rates unchanged for 11 consecutive policy meetings, despite persistent calls for cuts to stimulate economic activity.
The RBI has maintained a cautious stance, prioritizing inflation control over short-term growth stimulation.
Global Uncertainties Cloud Growth Prospects
Looking ahead, the report highlighted significant global risks that could impact India’s growth prospects in the 2025/26 financial year. These include:
- Uncertain Global Trade Growth: Geopolitical tensions and slowing global demand continue to weigh on international trade.
- Stronger U.S. Dollar: A robust dollar is making imports costlier and increasing global financial market volatility.
- Trade War Risks: The U.S. President-elect Donald Trump has indicated plans to impose higher tariffs on imports from multiple nations, including India, raising concerns of a global trade war.
A Strong Domestic Outlook for the Long Term
Despite these global headwinds, India’s long-term economic outlook remains robust, supported by strong domestic fundamentals. Key growth drivers include:
- Government Infrastructure Spending: Continued investments in roads, railways, and digital infrastructure.
- Resilient Domestic Consumption: Steady growth in both rural and urban markets.
- Policy Reforms: Structural reforms aimed at improving ease of doing business and boosting investor confidence.
The report expressed confidence that the second half of the fiscal year (October-March) will outperform the first half, with sustained momentum across key sectors.
Balanced Policy Approach Key to Growth Stability
Policymakers are expected to maintain a balanced approach in navigating both domestic and global challenges. While monetary policy will continue to focus on controlling inflation, fiscal policies are likely to prioritize sustained economic momentum and social welfare programs.
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Looking Ahead
India’s economic trajectory in FY25 and beyond will hinge on a combination of policy stability, domestic consumption strength, and global economic dynamics. Despite uncertainties, India remains well-positioned to sustain strong growth, driven by a resilient rural economy, growing urban demand, and continued structural reforms.
As the global economic landscape continues to evolve, India’s proactive approach to managing risks while fostering growth will play a crucial role in determining its economic success in the coming years.
This news was reported by Reuters.
