India's economic growth is expected to moderate in the coming fiscal year, according to a recent assessment by a leading domestic ratings agency. The projection points to a calibrated slowdown as the economy navigates a complex global landscape and domestic challenges.
Growth Forecast and Key Drivers for FY25
India Ratings and Research (Ind-Ra) forecasts the country's Gross Domestic Product (GDP) to grow at 6.5% in the financial year 2024-25 (FY25). This represents a moderation from the estimated 7.1% growth for the current fiscal year, FY24. The agency's chief economist, Sunil Kumar Sinha, presented this outlook, highlighting a mix of supporting and constraining factors.
The primary engines for growth in the next year are expected to be consumption and investment. Sinha noted that while government-led capital expenditure has been a significant driver, there are early signs of a revival in private corporate investment. This shift is crucial for sustaining long-term growth momentum. However, the agency cautions that the full benefits of this private capex cycle may materialize with a lag.
Challenges: Global Uncertainty and Domestic Pressures
The moderation in growth is attributed to several headwinds. A significant factor is the persistent uncertainty in the global economic environment. Geopolitical tensions, volatile commodity prices, and the risk of escalating trade protectionism pose substantial external risks. Sinha specifically highlighted the threat of rising tariff barriers across the world, which could disrupt trade flows and impact export-oriented sectors.
On the domestic front, the performance of the agricultural sector remains a key variable. The agency emphasized that the 2024 monsoon season will be critical. A normal and well-distributed rainfall is essential for boosting rural demand, supporting agricultural output, and keeping food inflation in check. Any deviation from a normal monsoon could act as a drag on growth and exacerbate inflationary pressures.
Inflation and Fiscal Outlook
On the price stability front, Ind-Ra expects inflation to average 4.5% in FY25. This is lower than the projected 5.4% for FY24 and falls within the Reserve Bank of India's (RBI) tolerance band. A stable inflation outlook provides the central bank with more flexibility in its monetary policy stance.
Regarding government finances, the agency anticipates a continued focus on fiscal consolidation. It projects the central government's fiscal deficit to narrow to 5.4% of GDP in FY25, down from the revised estimate of 5.8% for FY24. This consolidation path is seen as a positive signal for macroeconomic stability, even as the government is expected to maintain its support for capital expenditure to nurture growth.
In conclusion, while India is positioned as one of the fastest-growing major economies, its growth trajectory in FY25 is likely to face speed bumps. The interplay between a recovering private investment cycle, uncertain global tides, and the vagaries of the monsoon will determine the final growth numbers. Policymakers will need to balance growth support with inflation management and fiscal prudence in a delicate global environment.
