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India’s GDP Growth Revised to 6.8% for FY 2024-25 Amid High Interest Rates and Inflation

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:

  1. 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.
  2. 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.

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