New Delhi, December 1: India’s GDP growth is now projected to slow to 6.8% for the financial year 2024-25, down from last year’s robust 8.2% growth, according to a report by Crisil. The July-September quarter posted a 5.4% growth rate, significantly lower than the Reserve Bank of India’s (RBI) forecast of 7%.
Key Factors Behind the Slowdown:
- Macroeconomic Challenges:
High interest rates and low fiscal stimulus are cited as primary reasons for the slower growth.- “Risks are tilted toward the downside given the lacklustre second quarter growth number,” noted the Crisil report.
- Inflation and Interest Rates:
- Retail inflation in October was recorded at 6.21%, breaching the RBI’s upper tolerance level of 6%.
- High food inflation, particularly in vegetables, fruits, and oils, continues to erode household purchasing power.
- The RBI has maintained the repo rate at 6.5% to combat inflation.
Bright Spots in the Economy:
Despite the slowdown, some indicators signal potential recovery:
- Agriculture:
- Agricultural growth remains strong, driven by expectations of a healthy kharif harvest and monsoon rainfall 8% above the Long Period Average.
- Increased reservoir levels are expected to boost rabi output.
- Crisil noted, “All this should provide a fillip to agricultural incomes and rural consumption.”
- The arrival of kharif crops is likely to ease food inflation in the coming months.
- Consumption Growth:
The festive and wedding season, coupled with easing inflation, is expected to buoy consumption growth in the second half of the fiscal year. - October Indicators:
- Automobile sales and export growth in October hint at a possible revival in the third quarter, suggesting the slowdown may be temporary.
Quarterly Trends:
- July-September 2023:
- Growth at 5.4%, down from 8.1% in the same quarter last year.
- April-June 2023:
- Growth at 6.7%, below the RBI’s forecast of 7.1%.
The government and policymakers are keenly monitoring these trends, aiming to stabilize inflation and support growth amid global and domestic challenges.